Small Talk: Watchdog has left door open on interest-rate swap cases


Click to follow
The Independent Online

The emails began arriving within minutes of the announcement by the Financial Services Authority that tens of thousands of small businesses have been mis-sold interest-rate swaps by the banks. Within half an hour, no fewer than six "claims management" firms had got in touch offering their views on mis-selling and, naturally, their services to small businesses that might be due compensation.

The words "claims management" are in quotation marks because these companies are little more than ambulance chasers. Having heard that the final bill for the banks may be as high as £10bn, these parasites are already working out how to get a slice of the cake, just as they have so ruthlessly done with payment protection insurance mis-selling.

Miserably, the FSA is giving them a helping hand. Although its literature includes warnings to small businesses that there is no need to use claims management firms, which take (often sizeable) chunks of any compensation paid, it has handed them an open goal.

In the case of PPI, consumers have always had the option of taking their case to the independent Financial Ombudsman Service if they are unhappy with the response received from their bank. But with interest-rate swaps, that won't be an option for the vast majority of small businesses, since only the very smallest firms are covered by the service.

The FSA did consider setting up a one-off scheme within the FOS to consider interest-rate swap cases, but then decided against doing so. It argues that it is already requiring the banks to consult independent reviewers on how they are investigating potential mis-selling cases, and on how compensation payments are calculated, and that it would therefore be inappropriate for the Ombudsman to provide an additional independent service.

One understands the argument, but it means small businesses dissatisfied with the way their case is handled will have nowhere to fight their corner except for the courts. And before they get to that stage, many complainants will be very sceptical that their cases will get a fair hearing, despite the assurances from the regulators.

These are exactly the conditions in which the claims management companies will flourish. They have already begun excitedly whispering about how complicated these cases are likely to be and how much scope there will be for the banks to wriggle out of paying compensation.

Unfortunately, there is some truth in these suggestions. The FSA has done its best to define the criteria businesses will have to meet in order to qualify as the sort of unsophisticated customer that would not have understood the risks inherent in interest-rate swaps. Inevitably, however, there are grey areas where the banks themselves will have to make subjective judgments. There are bound to be businesses told that they are not eligible to complain about mis-selling that do not agree with this assessment.

it is to the FSA's credit it has confronted the scandal (though it had to be persuaded). In failing to extend the Ombudsman service, however, the regulator runs the risk of handing the ambulance chasers another whacking payday they simply do not deserve.

One final thought: why has the FSA not taken a tougher line on requiring the banks to suspend collections of payments on disputed interest-rate swap plans? Now the regulator has warned mis-selling has occurred in as many as 90 per cent of cases, no company should be forced to shell out.

Ubisense to unveil contract boost

Ubisense, the Alternative Investment Market-listed technology company, disappointed last month with a trading update revealing that the timing of some projects had resulted in lower-than-expected revenues.

Now it hopes a new contract will prove the doubters wrong. The Cambridge-based firm, which specialises in smart technology for companies monitoring inventory, will today reveal that a North American client is to renew and extend a managed services contract. The deal is thought to be with Cox Communications, and worth up to $500,000 (£318,000).

Deals famine hits brokers

News that small-cap broker Seymour Pierce is seeking to raise cash underlines how parlous the position of firms in the sector has become amid a fund-raising famine.

Stockbroking firms in this sector have traditionally depended on a steady stream of new issues and M&A work to finance their activities, particularly since the move towards electronic trading has squeezed margins on broking. But figures from Allenby Capital reveal that Alternative Investment Market-listed businesses raised just £3bn last year, the lowest figure since 2003 – and a third down on 2011.

Small Business Man of the Week: Sultan Khan, founder and chief executive, AdMaxim

We decided early on that mobile advertising was going to grow much more quickly than many companies expected, particularly once the iPhone came along in 2007, and we developed an integrated mobile platform offering advertising and marketing options on any device.

"That wasn't what the venture-capital companies we were talking to at the time wanted us to do – they wanted us to be more specialist. But clients were telling us that fragmentation of the industry was holding mobile advertising back, so we decided to listen to them.

"What we've got now is an integrated service that can offer advertising precisely tailored to the user looking at it – for example, by geography, by demography, by type of device and a host of other factors.

"We did secure funding last year, from AdStream, which has made life much easier.

"We're really pleased with our progress – we now work with all of the well-known agencies as well as individual clients such as Tesco and Sony.

"We've delivered campaigns in more than 50 countries and we're working on licensing deals all over the world.