The government, fearing that it will be associated with the failure of the FSA, has finally woken up to this mess. Greg Clark, Financial Secretary to the Treasury, has told the FSA that banks must allow businesses that could have been mis-sold an interest rate swaps to cease making premium payments.
The Telegraph reports that Clark privately told the FSA that its finding that more than 90% of interest rate hedging products had likely been mis-sold to SMEs was a “game changer”.
By way of "coincidence" the FSA faces legal action over its compensation scheme.
Law firm Manches is preparing to launch a judicial review against the FSA, which it claims “acted unreasonably in establishing and changing the criteria for businesses to be within the review”.
In particular, Manches will challenge the introduction of the £10M cap. Rich Eldridge, a partner at Manches, said the FSA had used its powers “improperly”:
“The cap is illogical. An indicator of mis-selling is a swap for more than the loan. If a business with a loan of £9m is sold a swap of £9m it can be within the review. If the same business is sold a swap of £11m it cannot. The £11m swap is worse as the swap is more than the debt, but the £10m cap allows the bank to escape the review procedure for this swap.”The sooner we are rid of the ineffective and useless FSA the better!