City firms Bracewell Law and Lexlaw are representing dozens of businesses that claim to have been mis-sold products in the latest British banking scandal.
The FSA announced today that it has found “serious failings” by Barclays, HSBC, Lloyds and RBS in the sale of interest rate hedging products, leading to a “severe impact” on small and medium businesses. The regulator has reached an agreement with the banks over providing compensation where mis-selling occurred.
Barclays has turned to Simmons & Simmons as well as Matthew Arnold & Baldwin banking and finance head Steven Mills for advice on the so-called redress scheme.
It is understood that HSBC has instructed Freshfields Bruckhaus Deringer and Stephenson Harwood, with RBS instructing SNR Denton in a recent confidential settlement of £500,000 after an individual put in a counter-claim against the bank.
It is not yet known which firms are acting for Lloyds. The banking group has used Allen & Overy in the past.
Bracewell partner Michael Brennan said the mis-sold products were “highly inappropriate” and only for the benefit of the banks. The firm is representing around 30 businesses that are looking to launch claims against the banks, with most on a conditional fee arrangement.
He said: “We’re aware of many businesses that have been forced into severe financial distress, administration and liquidation, often at a huge emotional cost to the owners and managers, as they were unable to keep up with their payments.
“If an FSA-endorsed compensation scheme is established, it will enable the businesses to recoup some of the money they have been forced to pay out under these mis-sold interest rate swap agreements. It’ll be interesting to see how this scheme works and how similar its structure will be to the Financial Ombudsman Scheme or Financial Services Compensation Scheme.”
Lexlaw principal Ali Akram said his firm was acting for at least 50 clients, having taken one phone call a day for advice in the last six months.
But he said a “major flaw” in the redress scheme was that if a company’s claim was disputed, it may leave it out of time under the contractual limitation period of six years.
The FSA said it had found a range of poor sales practices.
Martin Wheatley, managing director of the conduct business unit, said: “For many small businesses this has been a difficult and distressing experience with many people’s livelihoods affected. Our work has focused on ensuring a swift outcome for these businesses that form such an important part of the economy.”
CEOs of the four banks, including beleagured Barclays boss Bob Diamond, have provided personal assurance to the regulator that they will ensure complainants are treated fairly, the FSA said.
The news comes just days after Barclays became embroiled in scandal after it emerged that the bank falsified Libor rates during the banking crisis of 2008.
Litigation boutique Hausfeld’s Washington office is behind a class action lawsuit in the US on behalf of purchasers of Libor indexed financial products affected by Barclays’ interest-rate fixing.
The firm’s London office is expecting to bring private enforcement action through the High Court for those in the UK and Europe who have suffered losses.
Barclays is being advised by US firm Sullivan & Cromwell in relation to the Libor scandal (28 June 2012).