Financial Conduct Authority Redress Scheme

Debate between Roger Williams and Mark Reckless

Thursday 4th December 2014 Commons Chamber

[Mark Reckless (Rochester and Strood) (UKIP)]

It is a privilege to follow the hon. and learned Member for Harborough (Sir Edward Garnier). He said that the Treasury should be leaning on the Financial Conduct Authority. I wonder where the Financial Conduct Authority itself should be leaning, because it has a considerable incentive to get this right.

We are talking about a precedent-setting voluntary redress scheme. In theory, if there is a class of customers who have not been treated fairly by the banks contrary to their regulatory principles, it would seem a good idea to establish a voluntary scheme to identify those who are in that class, the quantum of their loss, and the proper way in which to compensate them. If such cases can be dealt with in that way, rather than via the ombudsman or the courts, there is scope for significant cost savings and also, potentially, for a fair and proper system. However, there appear to have been a number of operational problems.

Schemes such as this require a degree of timeliness. Members have referred to the six-month delay in the assessment of the scheme. The purpose of the delayed assessment was to ensure consistency, but it appears to have failed, certainly given the approach of one bank, RBS, which has already been mentioned by several Members. If there is to be a voluntary system, it needs to have the confidence of the banks which are voluntarily participating in it, as well as the confidence of customers. Unless there is consistency—if one bank is allowed to get away with not compensating in a number of areas in which other banks are compensating—neither this nor future schemes will have the confidence of users or providers.

There also needs to be transparency, in relation to the principles of the scheme and how it will operate, but also in relation to the information that is provided. One of the main problems is the fact that the scheme is operating a black box. The customers and their advisers who have the most knowledge of the circumstances involved are unable to make a judgment on whether it is in the customers’ interests to enter the scheme in the first place, or on whether they are being dealt with properly within it. They are also unable to provide information that might correct misjudgments, because such information is not shared between the independent assessor, or the bank, and the end customer who is seeking compensation. May I ask the Economic Secretary why that information is not shared? Would this not be a better voluntary redress scheme, and a better model for other potential schemes, were it to be shared appropriately?

Consequential loss is a particularly important issue, which has arisen in a constituency case of mine. It seems that what was said about the operation of the scheme and the availability of consequential loss has not come to pass. At some point in the design of the scheme and in attempts to ensure its consistency, a decision seems to have been made—or, at least, a practice seems to have has developed—whereby virtually all consequential loss claims are turned down, or are paid to a vanishingly small degree.

According to information given to me by Berg, of the 1,535 cases that have been assessed for the purposes of consequential loss, 871 have received no consequential loss redress. Of those that have, 502 have received between £1 and less than £10,000, 51 have received between £10,000 and £100,000, and just 11 have received more than £100,000. I understand that a further case has been settled between a charity and RBS, partly thanks to the intervention of a Member of Parliament yesterday.

It is very difficult to make a proper decision on whether to enter the scheme if information is not shared, and if statements made about consequential loss are not borne out. As many Members know, there is limited competition for small businesses in the banking market. However, what has become clear to me, as I have looked at this game in a particular case, is the extent to which businesses are locked in by the nature of the swap product, and then locked further by dispute or litigation relating to that product. While in some areas a business might be able to go to a different supplier, that is almost impossible to do in many circumstances where a swap has been sold and then a dispute has developed later as to that swap.

The business I seek to draw attention to today is Port Medway Marina Ltd in my constituency of Rochester and Strood, next to the village of Cuxton. David and Neil Taylor, a father and son team, have built up and developed that business, but have been held back in an extraordinary way by their bank and a dispute over a swap entered into. I do not want to speak negatively about that bank, which in this case is Barclays. I have had positive dealings with Barclays on constituency matters. I opened its impressive new branch on Chatham high street, and more generally it can be said that it is not like RBS or Lloyds HBOS. It did not get the taxpayer bail-out. There is a huge difference between having some temporary guarantees and taking tens of billions of pounds of taxpayers’ money. Barclays did not take that, and it deserves credit for that, and I look to it to be reasonable in its dealings with this set of constituents, as in other dealings I have had with it. It may be the redress scheme that is causing the problems, rather than the relationship there might otherwise be.

[Roger Williams (Brecon and Radnorshire) (LD)]

The hon. Gentleman is being complimentary about Barclays, but as I understand it Barclays is one of two banks that will not pay out any redress unless the company involved also agrees to the consequential loss. That is rather unfair, particularly when those businesses are in urgent need of financial support.

[Mark Reckless]

I was not aware that Barclays was one of only two banks in that category. I am talking about a particular instance involving my constituents. They have an award, including interest, of £140,000, but they are only allowed to get that £140,000 if they give up their claim for consequential loss. As the hon. Gentleman says, that is unfair and I would encourage Barclays to look at that again, but also to look at the specifics of the case involving Port Medway Marina Ltd. I understand generally why banks will lean against consequential loss claims. They will be nervous that those consequential losses could expand unpredictably. It is also easy for a business to think, “If only we had had this money, we could have done that,” and make assumptions that things would have gone well and have an optimistic view as to that opportunity. There are also cases where people take advantage, as we have seen with BP, particularly in respect of claims in the United States, but we could not be further from that situation here, and Barclays in particular has been able to revise down its provision, not least because it seems that it is paying very little, if anything, in the way of consequential loss claims.

The particulars of this business are unique. In 1990 David Taylor managed to find and purchase 30 acres of derelict riverfront boatyard adjoining Cuxton. He took quite some risk in doing that, and he has had to go through quite a lot of difficulties in planning arrangements and in getting the right permissions to develop his business, and now that of his son. At one point this company was employing 16 or 17 people, but there are now just seven people. Some £25,000 annually of interest has been taken out of what would otherwise be cash available to that firm—an amount that could service a loan upwards of £250,000. The absence of that capital, and the inability to go to another bank while this swap was in action and was being disputed, has prevented that business from growing in very serious ways. Usually there is a relatively competitive market in terms of opportunities, and if money is available we would expect other people to come in and, as it were, compete away the returns available. In this case, however, the 30 acres of prime riverside frontage to have dry docks, to store boats and to maintain and develop those boats is an extraordinary resource, because since 1990 the development of the property market particularly along the banks of the Thames has been such that there is no longer the previous great surplus of wharves and places to have dry docks and to look after boats in that way. Any money available to the owners of those sites to redevelop has largely gone on residential use of those river frontage areas, as huge amounts of money can often be made from residential development. That has meant that such sites have become almost unavailable along the Thames. To find a facility of comparable size to the 25 to 30 acres of available land that Port Medway Marina Ltd has in my constituency, we would have to go almost around East Anglia or all the way down to Southampton. The Taylors therefore have a huge business opportunity there, but it is being stopped, or very significantly hindered and slowed down, in its development by the mis-selling of this loan and the unavailability of finance, specifically in respect of a 65-tonne boat hoist that has been bought but which cannot be installed without a new dry dock, so the company only has a 25-tonne hoist. That difference is absolutely huge for a company of this sort, and it is the bankers who are responsible for the non-availability of the finance to develop that and the huge business opportunities that would otherwise have been available to this company.

I would like to see this company continue and thrive. With finance, I believe it can. Barclays has admitted, I believe—or it is not disputed—that this was mis-sold as a swap. The relationship manager said it was a condition of the loan when it was not, and that manager has now left the company. I ask that bank to have a sensible look at this scheme and to allow this business in my constituency to grow and thrive in the way that it deserves to.