Small and medium-sized (SME) enterprises that have been wrongly mis-sold complex financial products by banks are successfully taking their fight to court, in a bid to secure better compensation and campaign for stronger SME rights.
Banks mis-sold interest rate hedging products (IRHPs) to SMEs under the guise of protecting them against moving interest rates, but thousands found themselves owing the banks millions of pounds they simply could not afford. High street banks were forced to compensated them to the tune of £1.8 billion, under the Financial Conduct Authority's (FCA) redress scheme.
But the redress scheme has come under fire for failing to compensate some businesses enough, or even at all, and now SMEs are taking action via the courts.
Care home operator Holmcroft, a victim of the mis-selling scandal, has been pushing for a judicial review against KPMG, which acted as an independent reviewer for Barclays' redress scheme. On April 25th, they succeeded.
Dan Fallows, founding director at Seneca Banking Consultants, calls it a landmark decision for SMEs.
"This could unearth the entire FCA review process, requiring banks to start again and review cases where [there was a] poor offer or no offer."
Ian Parker, director at lobby group Bully-Banks is also battling through the courts. Bully-Banks was founded in December 2011 by a small group of UK business owners, each of whom had been mis-sold IRHPs.
Parker's property company, Crestsign, lost its negligence claim against RBS but recently won permission to appeal the original High Court judgement.
RBS had won the case by relying on a controversial 'basis clause' in its terms and conditions which allowed it to duck any advisory responsibility, despite advising Crestsign.
If the Court of Appeal decides RBS cannot rely on this clause, lawyers say it could open the floodgates for more businesses to sue their banks and, moreover, it could throw basis clauses out the window and force banks to admit they have an advisory duty to their customers.
KPMG and RBS declined to comment. Barclays said that it "remains committed to achieving an appropriate, fair and reasonable outcome for all customers which are subject to the review of its past sales of IRHPs. Barclays does not comment on individual offers of redress.”
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Farah Khalique is a freelance business and financial journalist, with a keen interest in writing about non-bank financing solutions that can help SMEs grow their business. She has written extensively about banking scandals and has made TV appearances on Sky News and The Wall Street Journal Live to comment on topical issues including money laundering and bankers’ bonuses. Follow her on Twitter @FarahKhalique