One of the biggest legal advisers to businesses who were mis-sold complex loans has said banks have had a free hand in determining pay-outs to SMEs, with independent expert reviewers appointed by the regulator merely rubber-stamping settlements.
Fraser Whitehead at law firm Slater & Gordon, who has advised in over 300 cases in the banks' review of mis-selling to 30,000 small businesses, was commenting on The Herald's report yesterday of claims by campaign group BullyBanks that the review has failed SMEs.
The Financial Conduct Authority will today issue its latest update on the review of mis-sold loans containing derivatives or swaps intended to protect businesses from interest rate rises.
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Bully Banks revealed yesterday that a survey of 400 SMEs found that the higher the claim against the bank, the less generous the settlement offered to the business.
It also found banks unwilling to recognise well-founded claims for consequential losses, which the group's chairman Jeremy Roe described as " a disgrace".
Mr Whitehead said: "The conclusions they have reached from their survey exactly correspond with our own, that it doesn't appear to be a merits-based assessment. It seems to be that the amount of financial compensation banks have to pay out is driving the decision-making."
He added: "The FCA's independent reviewer is a silent witness, to call him that is a complete misnomer for someone who merely sits there and has no responsibility for anything except rubber-stamping the comments of the banks' decision-makers …
"Some of them appear to have no relevant experience of the matters, their presence is extremely expensive yet appears to be purely procedural."
Last month Scottish accountancy firm Johnston Carmichael questioned the exclusion from the review of over 11,000 SMEs who were defined as "sophisticated", but may still have had no experience of complex finances. Mr Whitehead said a scaffolding firm with a headcount above 50 at the time it took out the loan had been excluded on grounds it was a sophisticated customer, which was not untypical.
He said: "The problem with the review is you can't argue with it, and banks don't have to disclose their process or their criteria. I think there is going to be a surge of litigation."
An FCA spokesman said dissatisfied firms could still go to the financial ombudsman. He said: "Every case is looked at in-depth by independent reviewers who have the competence to assess whether offers are fair. Where they have concerns, they challenge the banks and we have seen them doing so. The independent reviewers answer to us and we have been checking that they undertake their work properly.
The British Bankers Association said: "Banks have been working hard to complete these reviews and all claims from businesses are looked at by an independent assessor appointed by the Financial Conduct Authority. This assessor will consider the conditions under which the original product was purchased and customers will find a full explanation of the outcome with their redress offer.
"If any business feels that they haven't received fair treatment we would encourage them to raise this directly with their bank so that their circumstances can be looked at as part of the established and externally monitored processes."