Small and medium businesses had no proper means of redress for mis-sold rate swaps because the courts are too expensive and the Financial Conduct Authority’s ‘mass redress scheme’ does not offer remedies in accordance with the law. Instead, the scheme offers what the banks - overseen by their friends the big four accountants - consider to be ‘fair and reasonable’ redress.
More often than not, this simply means the banks substituting one of their profitable products for another. It does not feel like justice.
The problem of mis-sold swaps is said to originate in the ‘sales’ banking culture of capital markets - based around the legal concept of caveat emptor - which since the 1990s has gradually contaminated what were once ‘relationship’ banking cultures.
My background in employment disputes led me to suggest that a specialist dispute resolution forum like the employment tribunals could help offer legal redress and change culture; since the 1960s inexpensive legal redress for employees has moved us from a ‘master and servant’ culture to one where the rights not to be unfairly dismissed or discriminated against dominate the culture of our whole society.
So, let’s have a Financial Services Tribunal which interprets the new legal duties on banks in FCA’s Handbook and gives redress to its customers in accordance with the law.
The idea has gained traction; later this month the all-party parliamentary group on fair business banking is holding a round table in the Palace of Westminster to discuss the idea. Some instinctively ‘get it’. The response of those who do not is normally this: we already have the Financial Ombudsman Scheme (FOS) offering inexpensive redress – why do we need another? The answer to that question is this.
The FOS, like the swaps mass redress system, does not apply the law. It facilitates confidential settlements – which it is open to the customer to accept or not as it wishes. It is, in essence, a sort of evaluative mediation. It does not develop the law in the light of public, reasoned argument. It does not articulate or explain customers’ rights and give public rulings on them. It does not afford public scrutiny of the law as it develops. Instead, the FOS is a sort of legal black hole, into which thousands of disputes have disappeared without trace.
It is the great strength of our common law system – and the market economy, which relies on its efficient operation – that when market participants are unhappy about market behaviour, it makes available to them a forum for open justice as a means of establishing norms of market behaviour.
That is as true in the employment market as it is in the financial markets. We abandon this common law methodology at our peril.
Richard Samuel is a barrister at 3 Hare Court. He will be chairing a discussion at the Law Society conference European capital markets: common rules for dispute settlement and regulation, 28 June 2016