Caroline Lucas, Green Party MP for Brighton Pavilion, has joined the growing cross-parry legion of MPs calling for an immediate Treasury Select Committee (TSC) inquiry into Britain's biggest banks mis-selling derivatives to small-to-medium enterprises (SMEs).
According to Lucas' blog, she says that having met with business owners in her constituency who were mis-sold "toxic products", referring to interest rate swap agreements (IRSA), more governmental intervention and probes need to be conducted into the extent of the damage caused to SMEs.
"Small and independent businesses are the lifeblood of Brighton and Hove's economy and the government has a responsibility to support them, not stand idly by while the banks rip them off. As well as helping to set up an all-party group in parliament, I'm backing calls for an immediate inquiry by the TSC to find out how the mis-selling was allowed to occur," says Lucas.
"The government must now act to ensure that the Financial Services Authority (FSA) puts a stop to the bullying behaviour of the banks, and to make sure those affected receive adequate compensation. More must also be done to make sure the banks lend to businesses so that local enterprises in the city can flourish," she added.
Since the FSA banned Barclays, HSBC, RBS and Lloyds from selling IRSAs to SMEs on June 29, after it found "serious failings" in the way they were sold, there has been a backlash led by businesses and politicians over the redress scheme.
Despite the ban, the banks are now in charge, with the aid of an 'independent reviewer,' of investigating all IRSA products sold to determine if there was a case of mis-selling. The banks are also able to determine if compensation is due and to what level.
"Since small business owners are often wary of speaking out about issues with their bank for fear of damaging their business reputation, this is likely to be just the tip of the iceberg," says Lucas.
The FSA initially said 28,000 products could have been potentially mis-sold to customers in June, but the regulator has since revised this number up to 40,000.
While the FSA agreement with the banks is intended to install a system of investigation and redress for customers disputing the sale of IRSAs, the lack of a deadline for these probes, as well as the level of 'power' the banks have over the investigation, has led to a number of politicians seeking a wholescale review of the scheme.
In a letter seen exclusively by IBTimes UK, Labour's Shadow Financial Secretary to the Treasury Chris Leslie wrote to the FSA's managing director Martin Wheatley expressing serious concern over the regulator's agreement with British banks and the lack of an appeals procedure in the mis-selling of interest rate swaps.
In a signed letter, Leslie outlined four main concerns over the FSA's June agreement with Britain's largest banks, which mainly hinge on aspects of compensation.
"You will be aware that the Federation of Small Businesses has expressed some misgivings about the scheme so far and I am also worried that the proposed arrangements may not provide fair, transparent and quick redress to those SMEs that were mis-sold interest rate swap products," says Leslie in his letter to Wheatley, who takes over as the CEO of the Financial Conduct Authority (FCA) when the FSA splits into two entities next year.
Meanwhile, at the end of September, the Parliamentary Banking Standards Commission (PBSC) conducted a Joint Select Committee hearing on the relationship between the banks and consumers, following the mis-selling derivatives scandal.
The results of the inquiry will then be submitted to the TSC.
However, the evidence sessions with a number of independent consumer groups and banking industry experts encompassed a wide range of issues, and the session only had a dedicated one-hour portion to gather evidence about the scope and scale of the mis-selling derivatives situation. No separate inquiry is currently scheduled.