Business Banking Fraud

Paul Masterton Excerpts

Tuesday 9th October 2018 Westminster Hall

[Paul Masterton (East Renfrewshire) (Con)]

I congratulate my hon. Friend the Member for Hazel Grove (Mr Wragg) on raising this important issue. It is a shame that he continues to have to do so.

Several of my constituents have been adversely affected by the unscrupulous behaviour of the banks mentioned today. I want to bring attention to the despicable actions of Clydesdale bank, which has not been mentioned, under the tutelage of its parent company National Australia bank.

The NAB Customer Support Group was set up by a small group of SMEs that were crippled by long-term, fixed-rate loans made via tailored business loans issued by the Clydesdale and Yorkshire banks. Many of the businesses have closed down, but most are struggling to survive, burdened by unmanageable interest rates and unable to break from the fixed rate due to extortionate breakage penalties of up to 40% of the loan, arising from the bank’s alleged signing of interest rate swap agreements with third parties.

The bank charges costs arising from exiting embedded interest rate swaps via the small print in the terms and conditions. However, with the passing of time, the bank admitted that there were no such micro-hedges, or match hedges, in place and that all interest rate risk was dealt with by the parent company, National Australia bank. The uncontrolled promotion of these products—driven, as always, by generous commissions—has caused enormous damage to the SME sector and the wider economy, especially in Scotland, including the west of Scotland.

Members of the support group are here today, including my constituent Ian Lightbody, and their objective is to bring the bank to account for the damage it has caused and to persuade or force it to apply satisfactory redress to all affected SMEs. Over the past few years, the FCA has been shown to be impotent. That must change, particularly now that some of these cases are so serious that even Police Scotland feels they merit investigation.

In June 2014, representatives of Clydesdale bank appeared before the Treasury Committee. The bank’s evidence was weak and, to be frank, misleading—apparently, with the benefit of hindsight, deliberately so. It said it would investigate fixed-rate tailored business loans, but it investigated only cases where a complaint was already live or had previously been made. That meant that around 7,500 people were not contacted or given the opportunity to have their loan investigated. The bank’s chief executive officer confirmed to the Treasury Committee that he did not believe that his bank’s tailored business loans were deliberately designed to avoid FCA regulation. However the Committee’s subsequent report, “Conduct and Competition in SME Lending”, concluded:

“The lack of public oversight, minimal transparency and limited coverage of the scheme mean that the Committee cannot be confident that Clydesdale’s separate internal review will deliver outcomes equivalent to the FCA review upon which it is intended to be based.”

The report went on to state:

“To protect themselves against the risk of providing a TBL’s hedging function, banks need to hedge the risk themselves. The FCA said that ‘the bank will have entered into a separate IRHP’”—

interest rate hedging product—

“‘with a third party in order to manage its financial risk of entering into the loan’.”

The Bank’s CEO, Mr Thorburn,

“confirmed that this was the case for Clydesdale Bank.”

Clydesdale bank subsequently confirmed that there was actually no third party and that, in effect, all the loans were self-funded. Despite that, and despite it charging and receiving substantial break costs from customers, it refused to address the devastation it caused to businesses and lives across Scotland. It charged for long-term interest rate hedges that, it can be proved, it and its parent company never matched.

Ian Lightbody’s firm was informed in 2012 that to break its loan it would have to pay a 22% break cost on a loan of hundreds of thousands of pounds. It had cashed in personal pension funds and arranged alternative funding to secure the future of its companies and, in particular, of long-standing employees. Naturally, that became untenable, and it had to close several companies.

Another of my constituents, Craig Brock, had long-standing companies with loans amounting to substantial millions of pounds with Clydesdale bank. In 2012 it gave him just 30 days to refinance. It appointed BDO as administrators, and the companies were sold on to Paradigm Ltd, allegedly at arm’s length. It turned out, of course, that Paradigm was another Clydesdale-funded company. The FCA confirmed to the 2015 Treasury Committee inquiry that it wanted more power to investigate Clydesdale’s tailored business loans:

“The FCA has written twice to the Treasury to raise concerns about the sale of loans with embedded interest rate hedging features and the FCA’s inability to address the problem under the current perimeter of regulation. However, the Treasury appears not to have responded formally to the FCA on the matter”.

There can be no doubt that these products were, at best, mis-sold and, at worst, fraudulently pitched and designed to fall outside the FCA rules. The bank and these products should be investigated by the FCA without delay. Thousands of SMEs and businesspeople across the UK took these products with no proper explanation of either the conditions or costs associated. They deserve our support, and they deserve justice.