The Scottish Government is to urge the Financial Conduct Authority to throw a lifeline to hundreds of small businesses excluded from the regulator's review of mis-sold derivative-linked loans.
Cabinet Secretary John Swinney made the commitment after the Scottish Parliament debated the mis-selling of hedging products to SMEs, and the lack of redress for businesses outside the review. At issue are fixed-rate loans with floating, market-related breakage costs that firms claim were not disclosed, creating liabilities that have crippled or sunk their businesses.
The debate at Holyrood was attended by members of the NAB Customer Support Group, which later staged its second protest at the headquarters of Clydesdale Bank in Glasgow. Clydesdale has come under pressure to include its fixed-rate "tailored business loans" (TBLs) in its review of hedging products, but has consistently denied they are derivative-related or were mis-sold.
Derivatives experts, however, say the products contained "embedded swaps", worked in the same way as those covered by the review, and were handled by regulated salesmen.
SNP MSP Roderick Campbell, who initiated the debate, said later he would be urging Mr Swinney to switch his pressure to the Treasury if, as expected, the FCA maintains that fixed-rate loans with embedded swaps are classed as commercial agreements outside its regulation.
Mr Campbell, first paying tribute to The Herald's coverage of the issue, told MSPs that borrowers with fixed-rate TBLs faced the same potentially huge breakage costs as those covered by the review. "So why should they be excluded because of a technicality? These loans are as toxic as standalone interest-rate swap agreements (IRSAs), and if the bankers who sold them need to be registered with the FCA they ought to be included in the review."
Mr Campbell said that although the Clydesdale had agreed to include some TBLs in its mis-selling review, 90% were excluded. "The all-party group at Westminster is in talks about products that have similar features to IRSAs but are embedded within a commercial loan agreement.
"We need to put pressure on Westminster to ensure [all] TBLs are addressed."
Conservative MSP Gavin Brown said it was "critical that the timescale is as swift as possible" as many impacted SMEs were drifting towards administration, and he called on the banks to "go further than they need to".
The SNP's Chic Brodie MSP said breakage costs could amount to 20% to 40% of a hedged loan and had been "the shark that lies below the surface of bank lending".
Mr Swinney said the victims were the small businesses essential to growing the economy, and were unsophisticated customers sold sophisticated and inappropriate products. He urged banks to "engage with those who are affected and come to some resolution".
But John Glare, secretary of the NAB Customer Support Group, said afterwards: "There is a solid brick wall. When these MSPs start trying to attack it they are going to get rebuffed – we have been knocking on [the banks'] door for a long time." He said the group's members had £103m of loans with £14.3m of breakage costs.
Bully-Banks, the UK-wide campaign group on mis-sold hedging products, yesterday launched a new website and support service to help small businesses.
Jeremy Roe, chairman, said: "We are seeing offers of redress starting to come through from the banks and are making progress in areas that weren't originally covered by the FCA review. But there is still a long way to go."
Meanwhile a survey by the Forum of Private Business has found high bank charges are "hurting small businesses already struggling with cash-flow issues", and warned of an increase in banks asking for "harmful levels of collateral" in return for finance. Phil Orford, the forum's chief executive, said a deterioration in SME finances was being driven by "the banks' ongoing failure to deliver affordable finance to small firms".
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