Labour's Shadow Financial Secretary to the Treasury Chris Leslie has written to Financial Services Authority (FSA) 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 seen by IBTimes UK, Leslie outlines 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 sent to Wheatley, who takes over as the CEO of the Financial Conduct Authority (FCA) when the FSA splits into two entities next year.
"While I am appreciative of the work that the FSA has done so far in analysing the nature and extent of mis-selling, it is the following aspects of the compensation scheme which are of particular concern," he adds.
In the letter Leslie says that since the "wrong-doers will be investigating their own wrong-doing, many businesses will feel that this is not only flies in the face of natural justice, it means that victims of mis-selling will have no trust in the outcome of the process."
At the end of June, RBS, Lloyds, Barclays and HSBC were banned from selling interest rate swap agreements (IRSAs) as part of a deal with the FSA. Initially, the FSA said that 28,000 IRSAs have been sold but this number was revised only a few days ago to over 40,000, an increase of more than 40 percent.
All those cited products will be eligible for review under the redress scheme, where the banks, alongside an independent reviewer appointed by the group, will be in charge of deciding whether the business was mis-sold a product in the first place and if so, the bank also will decide the level of compensation.
Leslie tells Wheatley in the letter that "the scope and terms of the reviews into banks' mis-selling are determined too greatly by the banks themselves" and that appeals process, which is also determined by the banks are "concerning."
He also highlights that the process of reviews, which currently does have a legal deadline attached to it, "looks likely to be lengthy ... [and] during that time businesses will still have to make the payments required under the terms of their potentially mis-sold swap contracts."
In a bid to get an answer to many questions that industry and legal experts, as well as the businesses, have been asking on a frequent basis, Leslie asks Wheatley to answer five main questions, which includes why there is no set current timeframe on banks reviewing the cases.