British banks have paid out only a fraction of the £3 billion designated to compensate SMEs mis-sold interest rate swaps products, drawing criticism from the business world and the financial watchdog.
Earlier in the autumn the Financial Conduct Authority stated that 25,000 sales were in the process of being assessed by the banks and the first letters offering compensation had been sent out. It was their expectation that most customers would be informed of the result of their review and of any possible basic redress by the end of the year. However, despite this figures recently released indicate that only 22 SMEs accepted offers in September and figures are not expected to be much higher in October.
This has led the FCA to comment: "Progress to this point has been slower than expected. Many customers have been waiting too long to find out if they were mis-sold, some for more than six months."
The review of interest rate swap mis selling formally began in May after the pilot scheme concluded. The intention was that firms would be compensated within 6 to 12 months, but now it has become clear that the process is to take much longer, despite the fact that the banks have taken on more than 2,800 staff to handle the cases.
The banks paid £1.5 million in compensation in September with 22 offers being accepted by customers, the FCA has said. This brings the total the banks have paid out to just £2 million since the regulator ordered the review of nearly 30,000 cases in 2012. With figures as low as these it is hardly surprising that the lack of progress has angered SMEs, many of which are struggling to stay in business thanks to crippling monthly repayments and adversely large break fees.
Speaking at a Parliamentary debate in late October, Financial Conduct Authority Chief Executive Martin Wheatley, said: "The industry is deceiving itself if it imagines that a total of 32 offers accepted, totalling two million pounds, is adequate progress."
"A very good option in what is now a very fluid situation is to follow the positive lead set by some banks, by paying compensation in separate stages, effectively fast tracking compensation payments."
With this in mind the FCA has stated that 1,000 letters of compensation are said to have been sent out in October by the banks, and that number is said to be set to increase month on month.
Businesses that have been mis-sold swaps will be offered compensation with the intention to reinstate the financial position they would have been in had they not been mis-sold, plus interest of around 8% a year on top.
However, due to the incredibly complex nature of each unique case, not to mention the sheer numbers involved, many customers feel that they are receiving offers that in no way redress the hardship, both monetary and emotional, that they have endured.
The compensation programme is set to continue and only time will tell if tangible progress is being made.
Andrew Brown is a Partner at Cardiff and London based law firm Capital Law www.capitallaw.co.uk. He is a specialist in financial disputes, in particular interest rate swaps.