By Daniel Hunter
Thousands of businesses are being pushed towards insolvency because of the delay in implementing the compensation scheme for those mis-sold controversial interest-rate swaps, according to a leading law firm handling dozens of claims.
According to Berg, the Financial Services Authority (FSA) scheme, agreed in principle with banks four months ago to offer redress to companies affected by the scandal, is still not up and running. In the meantime, businesses mis-sold interest rate swaps by banks are paying huge — and sometimes crippling — monthly fees.
As many as 100,000 businesses may have been mis-sold the products, which hedged against the risk of rising interest rates yet imposed massive charges when rates were lowered by the Bank of England following the recession in 2008.
Berg is currently advising more than 40 businesses on interest-rate swaps, including three of 50 that are part of an FSA pilot redress scheme.
“Since the FSA announced the compensation scheme at the end of June 2012 business have seen very little real progress," Alison Loveday, managing partner of Berg, said.
"Each bank appears to be approaching this in a different way and at this stage, there has still not been any clear guidance on what ‘appropriate redress’ will look like or who will be entitled to it.
“In the meantime, thousands of businesses across the UK are stuck paying hefty monthly fees. We have seen first-hand the impact this has on companies, with many being pushed to the brink of insolvency.
“It is possible that even when it is operational, the FSA scheme may not offer businesses compensation at a level that really reflects their true losses. In a week that has seen the countrycome out of recession, confidence in the relationship between banks and their business customers needs to be resolved quickly if SMEs are to be allowed to drive the economy forward, as we would all like.”
This week, the Financial Ombudsman Service overturned two earlier verdicts to refuse businesses compensation over mis-sold interest-rate swaps, potentially paving the way for thousands of new claims outside the FSA scheme.
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