Treasury ordered city watchdog to “be cautious with banks” in abuse investigation Business News

Sajid Javid and George Osborne pressured city watchdog to ‘spare the banks’ and limit compensation for small businesses ruined by toxic financial products, damning review of scandal finds abuse of a decade.

Evidence in an independent report by Jonathan Swift QC contradicts years of Treasury denial that government ministers pressured regulators to relax a compensation regime for business owners who falsely sold interest rate swaps.

Swaps were sold as “protection” against rising interest rates, but companies were hit by tens or even hundreds of thousands of pounds when rates fell. Many businesses have failed as a result.

A review was supposed to compensate those affected. In January 2013, then-chancellor Mr Osborne decided, after intense lobbying from the big banks, that the bill would be too high and should be reduced.

Treasury officials proposed new criteria that ruled out thousands of cases that would have been the most costly for banks.

FCA’s predecessor, the Financial Services Authority, stressed that it was “unwilling to compromise getting the right bottom line for small businesses,” according to the Swift report. However, soon after, he changed the rules as requested by the Treasury.

He restricted eligibility for the program to exclude around 10,000 customers, saving banks billions of pounds at the expense of victims of abusive sales.

The main beneficiaries of the change have been the Royal Bank of Scotland and the Lloyds Banking Group, both partly owned by the Treasury.

Swift found that there was “no clear evidence as to how the eligibility test was identified as appropriate” and that the changes to the criteria were “negotiated in last-minute confidential discussions” between the Treasury and FCA.

The FCA’s mandate is to hold financial companies to account for their conduct while protecting consumers. It is supposed to be independent from government, but its managing director, chairman and three other board members are appointed by the treasury.

A 2018 letter from the Treasury in response to complaints about the program asserted that the changes were “not the result of intervention by the Treasury or any other party.”

However, a treasury official quoted in the Swift report said that the treasury had been “exercised hard by the CEOs of the banks,” especially the two public institutions, Lloyds and RBS.

The official said of a January 2013 meeting: “As a result, the Chancellor came to the opinion that the total repair costs should be reduced and that the purpose of the meeting was for the HMT to understand the proposals for the FSA to find ways to cut costs. “

The official said that “the ministers’ desire to keep the cost of this exercise down outweighed the HMT’s previous position,” which was that it “fully supports small businesses and that the FSA needs to put in place a solid exercise. review and redress ”.

Senior FSA official Clive Adamson objected to what he saw as “inappropriate” lobbying by the Treasury on behalf of the banks.

He told the review that: “What was unusual here was a clearly expressed view on [the] the desire of ministers to… question what we were doing and I think it’s fair to say that we were disappointed in that. Mr. Adamson was then kicked out of his FCA post by the Chancellor.

Mr Javid, who at the time was financial secretary to the Treasury, lobbied the Financial Services Authority to “give the banks softness”, according to an email written by Martin Wheatley, then head of the FSA .

Just a month before sending that email, Mr Wheatley told the House of Commons Treasury Committee that he had not come under undue pressure from the Treasury to change the program. Mr. Wheatley declined to participate in the Swift exam.

The evidence in the report raises further concerns about FCA’s independence from government.

Commenting on the Treasury’s influence, an FCA employee said: “It is a matter of political reality that the CEO of FCA was appointed by the Treasury, so… the political realities are that not all stakeholders are involved. not equal. “

They added that this “does not mean that we have been subjected to inappropriate influence.”

On Tuesday, the FCA acknowledged “manifest shortcomings” in processes, governance and record keeping, but declined to consider again offering compensation to victims of abusive sales.

The regulator said: “The FCA does not consider that the FSA erred in limiting the scope of the redress regime to less sophisticated clients and concluded that it would be neither appropriate nor proportionate to take further action.

“Accordingly, the FCA will not seek to use its powers to demand that further relief be paid to IRHP clients.”

The Treasury and UK Finance, the lobby group representing the banks, have been approached for comment.

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This notice was published: 2021-12-14 23:16:17

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