Compensation payouts to small businesses mis-sold derivative-linked loans have speeded up but only 11% of the SMEs in the mis-selling review have so far accepted an offer, with less than four months left for banks to meet the regulator's deadline.
The Financial Conduct Authority said yesterday total redress payments had risen from £158 million at the end of December to £306m at the end of January. The FCA's director of supervision Clive Adamson, said: "Redress is now rapidly flowing to small businesses. However, our focus will remain on ensuring that during the decision process affected business owners are treated fairly and that banks remain on course to get their initial offers of compensation out by the end of May."
Around a third of cases have been determined, but accepted pay-outs still cover only 2092 SMEs out of 18,700 in the review, with a further 682 denied any redress. On top of that 10,269 firms are said to be "sophisticated" and ineligible, despite the average 96% mis-selling rate found among sales in the review.
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Up to another 40,000 firms may have been sold "embedded swap" loans, which operate in a similar way but are classed as commercial loans outside the FCA's power, the regulator has admitted. An early day motion on the issue by Scottish LibDem MP John Thurso has now attracted the support of 71 MPs. Mr Thurso told campaigners that the Treasury Select Committee, of which he is a member, planned a "short inquiry".
Simon Jaquiss at specialist advisers QA Legal said the average pay-out had dropped, from £152,500 to £146,414. "The average redress should in our humble opinion be going in the opposite direction - the average claim size for basic redress is much closer to £240,000."
He said only 16% of offers were accepted by SMEs last month compared with 25% in December. "The likelihood is that the banks are going to have to pay out something much closer to the actual provisions for mis-selling than the current run-rate. RBS seem already to have realised this during January, in providing an additional £500m for redress."
RBS is reviewing 8991 cases with 2429 at the offer stage, while Lloyds has 1756 cases (819 offers) Barclays 3245 (1041 offers) and HSBC 3266 (1688 offers).
Mr Jaquiss admitted that litigation, the only option for so-called sophisticated customers, had so far proved unsuccessful.
"The door is pretty well closed. As far as I can tell, there are hardly any, if any, cases that are set for court now." But he noted that one business that had lost in court had recently been upheld in its mis-selling complaint by the Financial Ombudsman Service. "Its determinants were much wider than those of the court," Mr Jaquiss said.
Scott Cowan at Edinburgh-based adviser Veritas Treasury said: "We know some of these cases and they hang on a technicality, the client is in no way sophisticated in any normal meaning of the word."
The 2092 payments accepted so far include 1741 "full tear-up" offers and 304 alternative capped loan offers.
Mr Cowan commented that only 8% of offers, compared with 23% in December, had involved other alternative products, which were "less palatable to claimants and also massively beneficial to the banks".
He said: "It could imply that behind the scenes the independent reviewer is demanding more scrutiny of these decisions or battling to overturn them."
Mr Cowan added: "Also bear in mind the SMEs sold embedded swaps in tailored loans - the very people who should have been afforded most protection - have been excluded from the review.
"The banks involved have sold inappropriate products seemingly with impunity and we know for a fact that SMEs are suffering because of it."