Interest Rate Swap Derivatives

Steve Brine Excerpts

Thursday 24th October 2013 Commons Chamber

[Guto Bebb]

My hon. Friend mentions the sophistication test, and I will be coming to that; it is indeed something that concerns me and the all-party group.

We have found consistently that banks are admitting a mis-sale in about 93% of cases. Had we found, in the consumer mortgage market, that 93% of mortgages had been mis-sold, would we have allowed nine months to pass between those findings and the situation we now face? We have to ask the question: is it right that these businesses should be treated differently because they are small businesses, when we have found that there has clearly been mis-selling?

[Steve Brine (Winchester) (Con)]

I have many constituents, some of whom are outside this place today, whose businesses are in limbo while they wait for this interminable delay to be sorted. They are unable to press on and employ the people they want to, to grow their businesses, pay their taxes and help to grow the economy, which is what we all need to happen. That is the bigger point in this debate: the impact on the wider economy.

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[Natascha Engel]

That is right and this whole scandal has shown how it has been possible to pass the blame between banks, the FCA and the Treasury, and nobody will take any responsibility for what has been an absolute scandal.

I have seen this in my casework. Mr and Mrs Chadwick buy and sell homes and their business has been very successful. These small and medium-sized companies are not just viable; they are successful. It is only because of this mis-selling scandal that they are going bust. I cannot understand the logic of this: what interest does a bank have in a business going bust and losing all its money? The logic of that is beyond me.

I am also concerned about banks that have taxpayer funding, such as RBS, which has a lot of these cases. We must look much more carefully at the link between the regulator, the banks and the Treasury.

I agree that proper criminal penalties must be imposed on those banks, individuals and organisations that have been proven to have been part of this injustice, and I also agree with the call for a moratorium.

[Steve Brine]

The issue of suspensions and the length of time this has all taken was raised with me at a business breakfast in Winchester last week. This has generated so much anger. While it was understandable that there were no suspensions while things were supposed to be done on a shorter time scale, it has now taken 16 months in some cases. That is why it is causing real hardship and anger, and I hope that point comes across loud and clear to the FCA, which I know is listening to every single word this morning.

[Natascha Engel]

I could not agree more. I do not know whether other Members have received a letter from Barclays today outlining, in not very easy-to-understand English, what it is doing and proudly proclaiming how “tightly controlled” and “heavily scrutinised” the review is

“whereby all the banks involved are required to develop a detailed methodology for agreement”,

blah, blah, blah. It goes on and on and on. If this is phrased in anything like the same way as the products individuals were sold, I am not surprised they did not understand what was going on.

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[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.

[Steve Brine]

A number of colleagues have mentioned this. Does the Minister have a view on a truly independent appeals process? Given that 93% of the cases looked at thus far have been non-compliant, the number involved would not be massive.

[Sajid Javid]

As my hon. Friend will know, there is a necessary degree of independence in the process. However, he raises a good point, which, as he said, has been raised by others today. It is important to make sure that there is confidence in the process. If confidence does not come about in the coming months, the FCA may have to review things and the process that my hon. Friend suggests could be taken forward.

I end by reiterating that the Government take extremely seriously the abuse that has taken place in very many cases. I sympathise wholeheartedly with campaigners in the Chamber and beyond. I am determined that any wrongs inflicted on businesses should be put right and want a quick solution to the mis-selling of interest rate hedging products.

Small businesses are the backbone of our economy and they should be allowed to draw a line under this issue and get back to what they do best—working hard, creating jobs and creating growth for the UK economy. Once again, I thank hon. Members, particularly my hon. Friend the Member for Aberconwy, for bringing the issue to the attention of the House. I assure them that I will make sure that the issue continues to receive the highest level of attention from the Government.