FCA facing High Court over interest rate hedging redress scheme
The City regulator is in the High Court this week over its Interest Rate Hedging Products (IRHP) redress scheme, which a cross-party group is trying to overturn.
In the mid-2000s, banks earned huge profits by selling products to customers that were touted as designed to protect customers from interest rate rises. However, the products actually cost customers enormously when the global financial crisis hit and interest rates fell.
The Financial Conduct Authority (FCA) established a redress scheme in 2012/13 for the IRHP scandal. Nine retail banks, including Barclays, Lloyds, and Santander, ultimately paid more than £2bn to customers for over 20,000 sales.
However, an independent review by barrister John Swift KC in 2021 criticised the scheme, including its scope, finding that it was wrong to exclude thousands of sales to customers who were considered “sophisticated.”
The FCA acknowledged the “clear shortfalls” in processes, governance and record keeping, but it did not agree to expand the scope to compel the banks to provide further redress.
The All-Party Parliamentary Group on Fair Business Banking (APPG) has brought a judicial review against the FCA after it “refused to act” following the outcome of the Swift Review.
The made up of MPs and Peers, now chaired by Labour’s Lloyd Hatton MP, launched legal action back in 2022, using CowdJustice to raise funds, which has over £100,000.
Last year, the court granted APPG permission to proceed with the judicial review against the FCA.
One of the group’s arguments in this case is whether the FCA acted lawfully when it rejected Swift’s conclusion about the ‘sophistication test’.
The trial was listed for 16-17 July 2024, but as a result of the dissolution of Parliament for the general election, the proceedings were re-listed to this Tuesday and Wednesday.
The cross-party group is represented by partners Ned Beale, Simon Bishop and senior associate Rachael Baillie of Hausfeld. While the City regulator instructed Dentons for its defence.