– Britain’s first dedicated Fixed Rate Loan (“FRL”) redress service for SMEs launched today

– Redress for mis-sold FRLs could dwarf the £3 billion set aside by banks for mis-sold standalone interest rate hedging products

Nasar Zamir
Nasar Zamir

Tens of thousands of small and medium-sized businesses that took out FRLs from 2002 to 2012 could benefit from compensation through a new service launched by Congruent Financial Partners, a London-based actuarial firm providing advocacy and redress valuation to SMEs and individuals who have been mis-sold financial products by UK banks.

Congruent’s actuarial team will help borrowers identify whether they have been mis-sold an FRL, provide them with a valuation of redress and advise them in negotiations with their bank.

The Financial Conduct Authority (FCA) recently warned the Treasury that fixed rate loans containing underlying or ‘hidden’ hedging derivatives enable banks to hide “often profitable product features from their perspective without rules in place to protect customers and no risk of regulatory oversight”. Approximately 70,000 FRLs were sold to SMEs between 2002 and 2012. However, as recently as April 25, the FCA indicated it was unable to pursue potential mis-selling.

A FCA-mandated review of bank settlements for SMEs mis-sold standalone hedging derivative products closed at the end of May, for which the big banks set aside £3bn for compensation, excluding consequential losses. Eighty-seven Members of Parliament signed a petition calling for FRLs to be included in the review.

Hiding hedges within FRL products resulted in SMEs being left with punitive break costs to exit loans, and it is alleged that the banks had not warned customers of these, as in the case of the standalone products. Typical impacts on SMEs include lost business opportunities from reduced capital reserves, or higher banking costs resulting from impaired credit ratings. Businesses also found themselves unable to pay off the loan, to refinance or to raise additional capital.

In an April 2014 hearing of the Treasury Select Committee examining the issue of FRLs, Chairman Andrew Tyrie MP spoke of having been previously given ‘misplaced assurances’ that FRLs were not a problem.

Roger Grenville Jones
Roger Grenville Jones

Roger Grenville Jones, Principal, Congruent Financial Partners, said: “Derivative-linked banking products are complex to put together, easy to mis-sell and a nightmare to unravel. For standalone products, the FCA developed a simple process to enable many SMEs to get minimal compensation, but that does not mean SMEs should sit back and hope that compensation is organized for them for FRLs. They can already negotiate directly with the banks, or they can go to court, but to do so successfully, they need the tools to effectively put forward their case.”

Congruent’s offer is the first dedicated FRL redress service for SMEs, and has four components:

1: Case Assessment

Congruent establishes whether a client’s FRL was likely to have been mis-sold by the banks, through a thorough review of communications between the borrower and lender.

2: Redress Valuation

Congruent then develops a fair and credible valuation of any redress owed by the banks – placing the client in the best possible negotiating position.

3: Negotiation support

Congruent can advise clients through the negotiating process with the banks, scrutinising proposed settlements for any flaws or mistaken assumptions.

4. Litigation Support

Congruent can support clients considering or proceeding with litigation by providing an independent determination of fair redress. This enables firms to take a credible and firm bargaining position in their case.

Nasar Zamir, Principal, Congruent Financial Partners, said: “Small business owners shouldn’t have to have a PhD in Maths to negotiate with the banks, nor should they be hiring expensive lawyers without the valuation expertise to put together a credible case. Congruent has decades’ experience  and inside knowledge of the banking system and advanced valuation skills that will make it much easier for SMEs to right the wrongs of past mis-selling by the banks.”

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