The Financial Conduct Authority (FCA) has admitted there were ‘clear shortfalls’ and a ‘lack of transparency’ in relation to the handling of a redress scheme for firms who were mis-sold toxic interest rate hedging products.

The financial watchdog responded to John Swift QC’s damning review into the redress programme, which was supposed to protect small businesses from rising interest rates, but left many with soaring bills when those rates fell.

The scheme, which saw thousands of businesses receive £2.2b in redress, was introduced almost a decade ago for hedging products mis-sold 11- years prior.

However, businesses hit back saying the scheme was voluntary and excluded 10,000 mis-sold products to businesses, which the report calls an ‘inadequate regulatory response.’

In 2013 the FSA at the time, brought in a cap, which meant businesses with a swap worth over £10m, were classed as ‘sophisticated’ and discounted – a move that Mr Swift said ‘fell below the appropriate standard of transparency.’

The report goes on to say that ‘communications to stakeholders, and the public generally, did not provide a level playing field between the banks.’

Rob Cooper, CEO of ME Group, a LegalTech company helping law firms gain redress for mis-sold consumers, believes the review asks major questions of the FCA’s impartiality and competence.

He said: ‘There is no doubt that big banks would have found it incredibly difficult to cover the bill if all eligible business owners filed a claim for being mis-sold these hedging products.

‘John Swift QC’s findings shine a huge light on the reality of injustice that was at play.

‘It would be really alarming to see a seemingly independent regulator be potentially influenced by external forces.

‘The thought of protecting banks instead of victims of mis-selling who’ve often had their lives devastated, is a disgrace.

‘We can’t have a situation where our so- called independent regulator is in any way being influenced by government, in the interests of putting profits ahead of protecting the victims of mis-selling.

‘Unfortunately, this erodes consumer confidence and encourages financial services firms to act without the fear of the penalty being bigger than the profit derived from the wrongful conduct. This needs to stop.’

Rob Cooper, CEO ME Group

In a statement on the FCA’s website, Charles Randell, Chair of the FCA, said:

‘I would like to thank John Swift QC for his thorough and thoughtful review. The FCA today is a very different organisation from the FSA as it existed when these products were sold and when it established the redress scheme. We would expect to act far sooner and more decisively today.

‘We are transforming the FCA into a more innovative, adaptive and assertive regulator that is fit for the future. Mr Swift has made helpful recommendations that will strengthen our regulation, our supervision of firms and our approach to redress.’

To read the full ‘Lessons Learned Review’ click here.