In June 2012, the Financial Services Authority’s (FSA) found that mis-selling of financial products to small businesses had indeed taken place. It estimated that around 40,000 such products had been sold.
The findings from its pilot study showed that around 90% of claims received from firms were upheld, asserting that they had been mis-sold these products.
The financial products causing most harm to SMEs are known as ‘swaps’ and were a form of hedging against a potential rise in interest rates payable on loans. In some cases, when interest rates actually fell, businesses found that they were trapped in the high cost ‘swap’ policy, which they had n ot properly understood.
Victims have reported that in many case, taking out a ‘swap’ policy was a bank condition of being give a loan they were seeking.
Banks are now substantially upgrading their former estimates of what compensation to those mis-sold these products would cost them.
The mis-selling focused on the complexity of the products in question, beyond the ability of most SMEs to understand, leaving them vulnerable to the claims of salesmen which they were in no position to challenge.
Martin Wheatley, chief executive designate of Britain’s new market regulator and the FSA official in charge of the compensation scheme, has described the ‘swap’ products as ‘absurdly complex’. The FSA’s worst estimate of the total cost to the banking industry of the compensation scheme is £18 billion.
The worry with the compensation scheme has been that local businesses might slip through the net and remain uncompensated.
Following the FSA report and aware of this particular concern on the position of local SMEs, the Federation of Small Businesses (FSB) has put a process in place which aims to deliver help and advice to the firms affected.
The FSB is working with three companies to provide professional guidance and support through the process of accessing redress for its members.The companies are:
- Slater & Gordon
- Mayo Wynne Baxter Solicitors
- Mr Brian Hurst, 39 Park Square Chambers
The FSB will not be responsible for the legal process or the financial outcome. It will not be directly involved in the litigation.
What the FSB wants to do is secure a speedy solution for its members that have been affected by this mis-selling. It is keen to give support and advice to help thousands of small firms to navigate the FSA Scheme, accessible here online.
Rory MacKail, Chaiar of the Argyll and Islands Branch, says: ‘We felt that it was important for the businesses that have been affected to be able to take appropriate and professional advice, to ensure they get the redress they deserve. They now have a choice of support to help them through this process.’
Note: Read the FSB’s response to the FSA pilot scheme report.