‘Question marks’ hang over review procedure

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A YORKSHIRE-BASED business consultant has questioned whether reviewers appointed to help customers who were mis-sold complex interest rate swap products by the banks will be truly independent.

According to Harrogate-based Jeremy Gula, many of the independent reviewers work for the Big Four accountancy firms – Deloitte, Ernst & Young, KPMG and PwC – who rely heavily on the banks for their fees.

Mr Gula believes that reviewers from smaller financial services firms would be better placed to review these cases on behalf of victims.

Interest rate swaps are complicated derivatives that might have been sold as protection – or to act as a hedge – against a rise in interest rates. In many cases, the customer did not fully grasp the risks involved. They were marketed as low-cost protection against rising interest rates, often as a condition of a business loan.

But businesses such as bed and breakfasts and takeaway shops were left with colossal bills after the financial crisis caused interest rates to plummet to historic lows. In some cases, this cost has dragged the firm under. The banking industry is facing a large compensation bill after a review of IRSAs sold to small businesses found that more than 90 per cent had been mis-sold

Mr Gula said yesterday: “Most banks subject to the mis-selling row have now confirmed the appointments of independent reviewers to oversee the reviews of the sale of interest rate hedge products, but there is a growing swell of concern over how independent these reviewers actually are.

“The appointments have been approved by the Financial Conduct Authority, which states they conducted a robust approval process to ensure the reviewers have the necessary skills, expertise and independence to understand both the complex aspects of interest rate hedging products and ensure all customers affected by the agreement with the banks are treated fairly.”

Mr Gula, of JG Strategies, said he has helped local businesses such as nursing homes, farmers, hoteliers and property investors overcome problems linked to these financial products.

According to Mr Gula, there is “a big question mark over the independence” of the firms nominated by the banks.

Mr Gula said: “The sale of these products was particularly prevalent in Harrogate due to the number of successful businesses that have high value property assets such as farmers, care homes, nurseries and property investors.

“I am dealing with local cases where the banks have appointed Big Four firms of accountants as independent reviewers, but what concerns me is that some of these firms heavily rely on the same banks for other work and fees. I do not see how these firms can truly be described as independent. For example, some firms are on the bank panels for specific types of specialist work, such as insolvency and corporate recovery.

“In 2010 the Office of Fair Trading investigated elements of that industry, and raised concerns over the relationship between secured creditors (including banks) and firms of insolvency practitioners that rely on the banks for work. The Big Four firms have substantial IP departments who court the banks for such work.”

According to Mr Gula, the FCA should have used the services of the smaller independent firms of accountants, solicitors or financial services who aren’t on bank panels. He added: “There will be many dissatisfied people who will feel this review procedure is one-sided.”

Andrew Jones, the MP for Harrogate and Knaresborough, said yesterday: “A number of businesses have contacted me about interest rate hedge products, and I have taken their concerns up with the financial regulators and ministers and also spoken about this matter in Parliament. The key thing is to resolve the issues as quickly as possible for the businesses affected. The businesses need to have the cloud of worry lifted from them.

“It will also be good for the financial services industry to have the issue resolved.”

A spokesman for the British Bankers’ Association said: “I think the key point here is that the FCA approves the independent reviewer – they can require the bank to change the person if they are not happy with them.

“They have also put in place a process to ensure that there are no conflicts of interest, and have required the banks to propose new people if they think there are conflicts or perceived conflicts.”

A spokesman for the FCA stressed that it wanted to make sure that all customers affected by the agreement with the banks are treated fairly. The spokesman also highlighted the fact that an alternative reviewer could be put in place if the customer thought there was a conflict of interest.

Spokesmen for Ernst & Young, PwC, KPMG and Deloitte all declined to comment.