The decision follows intensive work by the FSA to scrutinise the pilot review of sales carried out by the banks and the independent reviewers. The pilot was established to allow the FSA to consider the banks’ proposed approaches to reviewing sales and to ensure they would deliver the right outcome for customers.
The FSA considered files containing all the evidence on individual sales of IRHPs, together with the bank’s and the independent reviewer’s assessment of each file. Evidence from customers has also been very important in assessing sales. In addition, the independent reviewers have provided reports covering matters such as areas of disagreement between the reviewer and the bank.
The work on the pilot has confirmed the FSA’s initial findings of mis-selling of IRHPs. The FSA looked at 173 sales to non sophisticated customers and found that over 90% of the sales did not comply with at least one or more regulatory requirement. A significant proportion of these 173 cases are likely to result in redress being due to the customer. However, the small number of typically more complex cases in the sample may not be representative of all IRHP sales.
The pilot has also enabled the FSA to consider the principles that should govern the review. As a result, the FSA has revised the eligibility criteria to ensure that the review is focused on those small businesses that were unlikely to understand the risks associated with those products. This might include, for example, bed and breakfast businesses which would previously have been ineligible due to their large numbers of seasonal workers. At the same time, some businesses that fell under the criteria published last June will be excluded. These include, for example, small subsidiaries of multi-national corporations, or Special Purpose Vehicles that are sophisticated enough to have understood the terms of the product or have sufficient resources to obtain advice.
Where redress is due, the FSA has reiterated the fundamental principle that it must be fair and reasonable for individual customers.
Martin Wheatley, CEO designate of the Financial Conduct Authority, said:
“This marks significant progress in our review of these products. We believe that our work will ensure a fair and reasonable outcome for small and unsophisticated businesses.
“Small businesses will now see the result of the review as the banks look at their individual cases. Where redress is due, businesses will be put back into the position they should have been without the mis-sale. But it is important to remember that this review is firmly focused on the particular circumstances of each sale. These will determine whether there were failings in the sales process and, if so, whether redress is due.”
The FSA has also been reviewing sales of IRHPs by Allied Irish Bank (UK), Bank of Ireland, Clydesdale and Yorkshire banks, Co-Operative Bank, and Santander UK. The FSA aims to be able to confirm that these banks can launch their reviews by 14th February.
Customers of all these banks will be directly contacted by the banks and will not need to involve other advisers.
Notes for editors
- The paper detailing the outcome of the pilot review[1].
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; securing the appropriate degree of protection for consumers; fighting financial crime; and contributing to the protection and enhancement of the stability of the UK financial system.
- The FSA will be replaced by the Financial Conduct Authority and Prudential Regulation Authority in 2013 as required by the Financial Services Act 2012[2].