Interest Rate Swap Derivatives

Ian Swales Excerpts

Thursday 24th October 2013 Commons Chamber

[Ian Swales (Redcar) (LD)]

It is a great pleasure to speak for the first time with you in the Chair, Madam Deputy Speaker.

I, too, congratulate the hon. Member for Aberconwy (Guto Bebb), not only on securing the debate but on his fantastic leadership of the campaign and the comprehensive speech that he has made today. These debates show Parliament at its best, although it is a little worrying that the banking industry seems to move tortoise-like between them, and to take on the characteristics of the hare only during the few days before and after they take place. Perhaps we just need to have more of them.

As I spoke in our last debate on this subject, I shall not repeat everything that I said then, but I do want to say something about the question of advice. Small businesses typically have an accountant and a bank, and in the past have typically relied on both to be on their side. However, it is clear from the mis-selling scandal that they should have been given independent financial advice, because the banks were no longer on their side, and were now treating them as potential consumers of sophisticated products.

If the banks insist on not being on the side of small businesses and on treating them primarily as sales prospects, we should be thinking about the regulations. We should be thinking about what sort of advice the banks should be telling their clients to seek, about what disclosures of commission they should be making, and about other matters that would be the norm if the banks were selling to private individuals. After all, many of the businesses that we are discussing are not much bigger than the affairs of a private individual. I hope that the Minister will respond to that point.

Some of my constituents, like those of other Members, are following today’s debate closely. Theirs is a very familiar story. Stephen Lilley wanted a loan, and stated explicitly that he wanted to pay it down as quickly as possible. However, he found himself locked into a long-term fixed deal involving a fixed amount of money. Roy Myers turned up to sign the papers for a fairly large loan, only to find that clauses were being inserted at the point of signing. He had no time to consider what was happening.

A point that I do not think has emerged clearly today is that the businesses that are involved in such arrangements are effectively locked into their existing banks, and cannot get out. There has been some predatory behaviour on the part of banks in those circumstances. A business in my constituency which, partly because of the banking arrangements, was in heavy weather financially, found itself having to pay an extra £500 a month for a “special relationship manager” who did not actually do anything. That was merely a way of extracting yet more money from the business. In another case—we heard of a similar example earlier—a life insurance policy was forced on a constituent who did not need it. People have very little room for manoeuvre when they are locked into their existing banks.

I welcomed last year’s decision by the FCA, but progress has been painfully slow. I was present when Barclays turned up at the all-party parliamentary group, many months ago, and convinced us that it was organising a great big operation and that things would move very swiftly from that point onwards—which, of course, they did not. Meanwhile, the lives of more and more businesses and individuals are moving on, and things are happening to them. A couple of months ago, one of my constituents who is a member of a support group was speaking to a woman who was ill at the time, and who has subsequently died. That is another person to whom the banks are no longer having to talk.

A great many businesses have gone bankrupt. The hon. Member for Harrogate and Knaresborough (Andrew Jones) raised a point that had not occurred to me before. If it is true that the banks will not have to compensate those behind bankrupt businesses, they have a financial incentive to bankrupt businesses. I have been around long enough to know that whatever banks have a financial incentive to do, we can pretty much count on their doing.

[Andrew Bridgen]

Does my hon. Friend agree that not only is this situation awful for the SMEs that have been caught up in the mis-selling scandal, but it sends a strong negative message to anyone who is thinking of going into business in this country? Does it not send them the message that the banks cannot be trusted, and provide them with a big incentive not to go into business at all?

[Ian Swales]

Absolutely. Earlier, the hon. Member for South West Devon (Mr Streeter) referred to the reputation of the banks. I think that they will have an enormous job to do to recover their reputation, and to rebuild the trust that new business people should expect.

I hope that the Minister will say something about the question of what happens when businesses have gone bankrupt, or their proprietors are deceased. Do they simply drop off the banks’ lists? If that is the case, I think that we should be very concerned about what the banks are doing and what they are incentivised to do.

There has been good news this week about the separation of compensation from consequential loss. Both the constituents of mine who are following this debate particularly closely have received money in the last few weeks. Why, Members may ask, should they be at the front of the queue? The two of them have been prepared to go very public—they have even appeared on television—and, amazingly, the banks appear to have moved them to the front. Cynic I may be, but I would guess this was part of a process of dealing with the most vocal people first, and of course it should not be like that.

The question has been raised of whether criminal activity has taken place. I think that there is a whole spectrum ranging from relatively innocent bank employees, selling something that they have been told to sell, to clear misrepresentation, lies and so forth. I think that Bully-Banks is finding that the same names recur in some cases, and I think that when what is clearly criminal activity has taken place, those involved should be prosecuted.

We have all talked about the need for extra pace. I hope that the Minister will put maximum pressure on the banks and the FCA to speed up the process, and will show that the Government are on the side of small businesses and our constituents.

--- Later in debate ---

[Sajid Javid]

The FCA has set out a clear process and is publishing more and more information on it. It is important that the FCA and the banks should stick to that. Equally, however, Martin Wheatley, the head of the FCA, has not ruled out any further action, including taking enforcement action if he deems that the redress process has not worked as intended.

A number of Members have mentioned redress payments. Of course we need to be confident that the scheme provides the correct level of redress for affected businesses. I understand why concerns have been raised about the FCA’s decision to allow the banks to settle with customers for a single redress offer, covering both basic redress and consequential losses.

It is right that the FCA, as an independent regulator, should decide such details. However, I agree that it is sensible for the initial payment for basic redress to be made to provide much-needed relief to the businesses. That is why I welcome the announcement this week, from HSBC and RBS so far, that they will now make an initial redress payment to businesses and then discuss consequential losses separately. Back Benchers should take credit for that move. Under the leadership of my hon. Friend the Member for Aberconwy (Guto Bebb), they have put pressure on the banks and we have seen the results already.

However, I want things to go further—I would like all the other banks to join the move announced by HSBC and RBS, and I shall be watching closely to see whether they do. That should help prevent any further undue distress for the businesses and give them much-needed cash-flow relief.

[Ian Swales]

I well understand that consequential loss calculations are probably unique to each business. However, the redress payments surely form a pattern, given that they are all based on similar products. Does the Minister believe that the banks should be able to move very quickly with the redress part of the compensation?

[Sajid Javid]

I agree. The banks should move much faster. Today’s announcement from the two banks is welcome, but other banks should take a serious attitude to not only the amounts but the timing of redress payments.

Hon. Members have also voiced concerns about the large number of businesses that have been assessed as sophisticated and so fall outside the scheme. My understanding is that the FCA used as a starting point the criteria for non-sophisticated customers set out in the Companies Act 2006. As such, the test reflects the fact that larger businesses would have greater resources to seek advice on the products in question, both at the time of sale and subsequently. Moreover, I understand that the FCA then amended the sophistication test in January to ensure that certain companies, which were classified as sophisticated under the Companies Act test but which might reasonably be considered to be non-sophisticated, were also brought into the scope of the review.

Throughout this debate, the Government have been clear that when a business lacked the necessary skills and knowledge to understand fully the risks of the products, it should receive the appropriate redress. We do not agree that all businesses should have access to the FCA review; there needs to be a defined cut-off point beyond which more sophisticated businesses take responsibility for understanding the products that they entered into. I am confident that the FCA has found the right balance to ensure that all non-sophisticated businesses fall inside the scheme.

I will not be able in the time available to address all the questions raised, but I might be able to help with a couple in particular. Some Members asked whether insolvency could be a reason for banks to try to delay the redress process. I assure the House that that could not be a reason. No one wants businesses to go insolvent, but if, sadly, they do, they will still be part of the review process. If mis-selling is found to have happened, banks will still be liable and on the hook—they will gain no advantage from the insolvency of a company.

Hon. Members, including the shadow Minister, asked whether the FCA could consider setting a deadline. There is a good case for the FCA to consider that, but it would have to be its independent decision. Due regard must be taken of the fact that it might take longer to sort out the most complex products, but it would be good for the FCA to consider whether setting a deadline would help to speed up the process.