20 September 2012 10:26
Small businesses do not have confidence in a new scheme to compensate them for the mis-selling of complex financial products, it was claimed today.
The Financial Services Authority (FSA) scheme, set to be launched tomorrow, was criticised by the Federation of Small Businesses (FSB), which has also written to Chancellor George Osborne appealing to him for changes to the way it will work.
Banks involved in mis-selling should not be allowed to be involved in running the compensation scheme, and the small firms who lost out must get swift redress with a full appeals process if their claim is turned down, said the FSB.
A report in June by City watchdog the FSA found "serious failings" in the sale of so-called interest rate swap arrangements (Irsas) to small businesses. Banks have sold around 28,000 Irsas – designed to protect firms against rises in interest rates – since 2001, but the FSA found that in many cases sales teams did not fully explain the downside risks to customers or failed to offer a choice of product.
With interest rates at record lows over the last few years, many companies are believed to have lost large sums.
Under the FSA's plans, banks will write to businesses sold Irsa products and then assess their situation and the compensation which they may be due. An independent assessor will scrutinise the process at each bank, with the whole system overseen by the FSA.
A pilot scheme, due to start on September 21st, will involve 50 clients from each bank.
The FSB said today that the proposed process "does not have the confidence of small firms, lacks transparency and will not help those firms affected as quickly as needed".
FSB national chairman John Walker said: "With 24 hours to go until the pilot scheme starts, we're deeply concerned that, as it stands, the scheme provides no incentive for the banks to go and find the small firms that have been affected to compensate them.
"The views of small firms have been completely ignored in designing the redress process and we've had little response to our concerns from the FSA. The FSB believes the independent system could be implemented as quickly as the FSA's solution and at a lower cost.
"Small firms have been badly affected by the mis-selling of these schemes. However, without the key element of independence, small firms will be deeply sceptical that the very bank that mis-sold the product to them is running its own compensation scheme."