The FSA is conducting a review into alleged misselling of interest rate swaps to small businesses, which could see the regulator reassess SME’s access to the Financial Ombudsman Service and compensation limits.
In March, Treasury select committee chairman Andrew Tyrie wrote to FSA chairman Lord Turner and FOS chairman Sir Nicholas Montague raising concerns over recent reports of interest rate swaps misselling, asking whether there is any evidence it is widespread.
The swaps are designed so that banks cover the cost of increased payments in the event of interest rate rises, while the customer has to pay the bank in the event that rates fall. Last month, around 40 MPs wrote to the TSC calling for it to investigate after constituents told them they were not warned of the products’ downsides.
In April, Turner responded to Tyrie saying the FSA is reviewing the design, sale and incentives of the products.
Turner says the regulator became aware of a “small number” of complaints relating to swaps in 2010 and 2011 but did not see any widespread, or underlying problems.
Turner writes: “It may also be appropriate for us to consider, as part of our work, whether the limits which we have previously established for ombudsman eligibility, and the compensation limit, remain appropriate.”
Under current rules, only SMEs with a turnover or annual balance sheet of less than £1.6m and employing less than 10 people can refer a complaint to the FOS. Businesses that do not fit into this category must pursue complaints through the courts.
Philip J Milton managing director Philip Milton says: “Big firms can afford to go to court so the limit seems fair and reasonable.”
Montague’s response to Tyrie’s letter is available here.