FSB has ‘serious concerns’ about FSA compensation scheme and claims small businesses are being blatantly ignored
The compensation system for small firms that have been mis-sold complex financial products has serious failings, the Federation of Small Businesses (FSB) has told the Chancellor.
In a letter to the Chancellor, following a meeting with the Financial Services Authority (FSA) – the independent regulator that devised the system – the FSB has said the redress process does not have the confidence of small firms, lacks transparency and will not help those firms affected as quickly as needed.
The FSA’s pilot scheme is due to start on Friday 21 September and will involve 50 claimants from each of the banks. The FSB wants an urgent re-think and says it isn’t too late to implement a redress process, totally independent of the banks, which ensures consistency across all cases.
The FSB agreed with the findings of the FSA’s report of June 2012 that there was evidence of mis-selling. However, the organisation did not agree with its proposed method of redress, believing that an independent system, run separately from the banks that mis-sold the products, is the best course of action.
The FSB is calling for a system with the following five principles:
· Scope: clear and objective rules agreed by the banks, the FSA and the business community which assesses eligibility and bars those ineligible for compensation at a very early stage
· Fair: The scheme must be separate from the banks which mis-sold the products, with a full appeals process if the claimant is turned down to avoid legal action
· Swift: Small firms are still paying very high amounts of money for these products, impacting cash-flow and in some cases costing jobs
· Transparent: The current scheme does not show the type of transparency that small firms need to ensure they are being treated consistently and fairly
· Right to appeal: The appeals process must be clear and not go through the legal routes
John Walker, National Chairman, Federation of Small Businesses, said:
“This is not the first time we have raised our concerns with the FSA. With 24 hours to go until the pilot scheme starts we’re deeply concerned that, as it stands, the scheme provides no incentive for the banks to go and find the small firms that have been affected to compensate them.
“The views of small firms have been completely ignored in designing the redress process and we’ve had little response to our concerns from the FSA. The FSB believes the independent system could be implemented as quickly as the FSA’s solution and at a lower cost.
“Small firms have been badly affected by the mis-selling of these schemes. However, without the key element of independence, small firms will be deeply sceptical that the very bank that mis-sold the product to them is running its own compensation scheme.”
Notes to editors
The FSB is the UK's leading business organisation with around 200,000 members. It exists to protect and promote the interests of the UK’s Real-Life Entrepreneurs who run their own business. More information is available at www.fsb.org.uk
In the FSA’s proposed redress scheme, the FSA has agreed with the banks a system which involves the banks writing to businesses which have been sold IRSA products, assessing their situation and then assessing redress. This will be overseen by a primary independent assessor, with a secondary assessor on hand if there is a conflict of interest. The whole system will be overseen by the FSA.
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