That this House has considered hidden credit liabilities and the role of the Financial Conduct Authority.
I will explain the genesis of this debate, Sir Roger. I chair the all-party parliamentary group on investment fraud and fairer financial services. The group was established some years ago as a result of hon. Members being approached by constituents who had experienced scandals in the delivery of financial services and the failure of regulatory bodies to address their concerns. It was chaired effectively by the hon. Member for Harrow East (Bob Blackman), who has now gone on to greater things as the Chair of the Backbench Business Committee. I thank him for enabling this debate to take place.
The scandal that has come before our APPG is the use of hidden credit lines, which has caused such serious harm to so many small and medium-sized enterprises, and caused personal disasters for many individuals and their families. We have drawn on the evidence presented to us by constituents, specialist advisers and the reports of BankConfidential, a specialist whistleblowing service for banking staff. Put simply, the story commences with a large number of SMEs approaching their banks for a loan and some of the banks then attaching to the loan a derivative such as an interest swap, supposedly to protect the loan against the risk of interest rate changes, and establishing a hidden credit line.
Lorraine Morris, an expert and specialist derivative lawyer, gave evidence to us on what she found:
“My research confirms that, far from mitigating risk, these instruments were deliberately engineered to transfer significant, undisclosed, and uncapped risk directly onto the customer. The mechanism was the concealed creation of a credit-line liability, booked against the customer’s assets from day one. This contingent obligation was not a notional figure; it was a hard liability that directly impacted the customer’s credit grade”.
Generally, when such a loan is taken, there is an agreed loan-to-value covenant. According to Ms Morris, the application of the derivative and credit line mechanisms impacted on those covenants and
“pushed viable businesses into a state of artificial distress. The sale of products as ‘protection’ when their fundamental structure achieves the opposite is a profound and fraudulent misrepresentation.
It is a profound tragedy that these banking frauds have pushed individuals to the brink, resulting in devastating loss of life, ill-health and destruction of families. As a legal advocate for justice, I believe this affront to human dignity demands not only our deepest sorrow, but a relentless and unwavering pursuit of accountability.”
That is what we are about today.
To understand the behaviours of the banks more fully, we drew on the evidence provided by Ian Tyler, a former senior banking executive who has used derivatives since the 1980s to manage interest rate risk for some of the UK’s largest banks. I will quote Ian at some length. He explained:
“The fundamental truth that has been buried by the banks and the FCA is that when a bank executes an interest rate derivative, such as an interest rate swap, it is required by prudential regulation to mark a counterparty credit risk limit to cover the Potential Future Exposure. This credit limit is a hard credit limit as the exposure generates a risk weighted asset that requires the bank to hold capital in support.
All hard credit limits are typically included in a bank’s Loan to Value security covenant calculation and so the moment a customer executes a derivative their LTV % increases and this weakens their credit standing. This situation was made materially worse in…2008 when in response to the failure of Lehman Brothers, policy makers reduced Bank Rate to 0.5%. This…led to a material increase in the credit line marked for the derivative as both the Current Exposure and the Potential Future Exposure increased, pushing many SMEs into the position where their LTV % was in breach of their security covenant.
However, as the bank had invariably not told the customer about the derivative credit line, in clear breach of conduct regulation, the bank often forced a technical breach of loan covenant through some other mechanism and then transferred the business to their so-called Business Recovery Unit where most businesses were subsequently put into administration.”
Many in the Public Gallery would testify to that.
What was the motivation of the banks? Hidden credit liabilities generated huge up-front revenues, bonuses and commissions. Worse, when the financial crisis hit, they became a mechanism for destroying viable businesses, some already in breach of lending covenants on day one, because of the undisclosed liability that had been taken on. The potential financial upside was so significant that whistleblowers revealed that staff at the state-controlled NatWest Group were encouraged to send victory emails when they successfully brought down a business that could then be feasted upon, with the bank sometimes buying distressed assets directly from the victims of such frauds.
There are too many examples of that, and some of those affected are with us in the Public Gallery. Alongside the banks’ predatory behaviour, there has also been a catastrophic regulatory failure, associated with a deliberate policy by the Financial Conduct Authority and, before that the Financial Services Authority, of siding with the banks and often with Treasury policy under successive Governments, rather than the innocent business owners who were being fleeced at the time.
The FCA has repeatedly and deliberately failed to act. I will give one example of participants’ experience from our all-party group. In November 2022, Lord Prem Sikka, Steve Middleton of BankConfidential and banking derivatives expert Ian Tyler, whom I have quoted, met the FCA to explain the hidden credit liability scandal in detail. They related what The Times assistant business editor James Hurley described across four articles as financial and accounting fraud, including theft from Ulster Bank fixed-rate loan customers, and all the hard evidence was shared. In our view, the FCA should have immediately launched an inquiry at that stage. Instead, it let the NatWest Group mark its own homework. When the bank concluded it had done nothing wrong, the FCA took no meaningful action, even deploying the astonishing argument that the fraud that had occurred was not criminal fraud.
The FCA’s unfitness for purpose is not a new observation for many of us here. On 1 February 2016, Conservative MP Guto Bebb led a Commons debate on the motion,
“That this House believes that the Financial Conduct Authority in its current form is not fit for purpose”.
Nothing meaningful came out of that debate or has happened since. In many people’s eyes, that has left the FCA still not fit for purpose, with Parliament having failed in its duty to fix it.
Where was the Treasury in all of that? The Treasury turned a blind eye and its motivation was simple. It needed the banks to do whatever was necessary to shore up their balance sheets after the global financial crisis, having already made the taxpayer bail them out. As I mentioned, where that has occurred the financial and emotional consequences for victims have been devastating in the extreme. The scale of the carnage has been horrific, with widespread forced insolvencies; suicides and early deaths; thousands of repossessions; and broken families. Many business people were made to believe that they had failed through their own fault, when in reality tens of thousands of businesses were deliberately targeted for insolvency.
I congratulate the right hon. Member on securing this debate. As he referred to earlier, the conditions that pertained in 2008 and the financial crash have resulted in banks making massive changes, but the banks should not be allowed—or encouraged by the FCA in some instances, as he has outlined—to punish viable businesses rather than promoting those viable businesses and trying to pursue faulty loans, which is what they should be doing.
That theme runs through many of the reports that we have had from constituents about the failure of the FCA to protect them—to ensure that regulation was implemented to protect them. There were also elements of almost turning a blind eye and collusion, and that is the reason for the anger that people feel.
Let me press on because the figures that we have heard in the past need to be challenged. As I said, many people thought that they had failed themselves, but in reality tens of thousands of businesses were deliberately targeted. Internal reports confirm that not 16,000, as claimed by the FCA, but 3 million customers were placed in NatWest’s non-core division, effectively a waiting room before being pushed into the notorious global restructuring group, or Lloyds’ equivalent business support unit.
There are so many examples, but I will give just one. Steve and Joan Finch spoke movingly at our summit last November. They took out what was meant to be a simple fixed-rate loan from Lloyds bank to buy Bredbury Hall hotel. Alongside that loan, the bank added the credit liabilities of a derivative, a swap, with a starting hidden credit liability of £1 million, rising to £3 million. Those undisclosed arrangements generated £179,000 in secret up-front commissions. A further £1 million was taken in fees when the bank processed the case through its so-called business support unit, widely criticised as an asset-stripping mechanism.
The business ended up there because undisclosed credit liabilities created a loan-to-value risk of 136%, against a permitted maximum of 70%. Despite being a thriving business, Bredbury Hall was manoeuvred into administration. Stephen Finch was bankrupted and the family had to raise £600,000 to pay off vulture fund Cerberus, to which the loan had been sold, to save their home.
Suspicious of what had happened, the Finches contacted Greater Manchester police with evidence of all three offences that had been committed under the Fraud Act 2006. The police took the matter seriously and investigated, but when they asked the FCA for technical assistance, the FCA refused, so last June the police closed the case, citing three reasons: lack of FCA assistance, insufficient resources for a complex investigation, and concern that examining the case would oblige them to investigate numerous similar ones.
Order. I think six Members are standing. I will call the Front Benchers at 10.30 am. I will not impose a time limit at this stage, but around six minutes a head should ensure that everybody who wishes to be called is called.
As always, it is a real pleasure to serve under your chairmanship, Sir Roger. I give special thanks to the right hon. Member for Hayes and Harlington (John McDonnell), who is a doughty champion for his constituents, and they are fortunate to have him as their MP—well done to him for all that he does in this House.
It gives me great pleasure to be a voice for the households and businesses in Northern Ireland that have, for too long, been navigating a financial landscape filled with hidden pitfalls and undisclosed liabilities. It is also a pleasure to see the Minister in her place. I have three asks of her, and I hope she will be able to accommodate me, and indeed others in the asks they have.
Although this is a UK-wide issue, the weight of hidden credit falls heavier across the Irish sea, in Northern Ireland. We are a region where 20% of all adults are struggling with over-indebtedness—the highest proportion in this kingdom. When we talk about hidden liabilities, we are talking not just about accounting entries or numbers, but about families in Belfast, Londonderry and Fermanagh who are discovering that the car finance they took out years ago was padded with secret commissions they never agreed to and had no knowledge of.
For our SMEs—the small and medium-sized businesses that are the absolute backbone of the Northern Ireland economy—the scars of the past run deep. Hon. Members may remember the Ulster Bank scandal. I remember it well, as will my hon. Friend the Member for East Londonderry (Mr Campbell). Derivative swaps were sold as protection, but instead acted as a noose around the necks of those who had taken them out. Those people found themselves constrained by what took place, and indeed they still are. Today, many of our small firms still find themselves trapped by complex credit lines and by break costs that were never clearly explained. With that mist, darkness or cloud hanging over those agreements, people find themselves—even today—trying to sort them out and find a way forward. The Financial Conduct Authority has a clear mandate to protect consumers and ensure market integrity, but protection that comes a decade too late is not protection; it is a post mortem. Those people found themselves in agreements where they had no idea about the small print or what it would do to them. Even today, the payments are mind-boggling.
It is a pleasure to serve with you in the Chair, Sir Roger. I thank my right hon. Friend the Member for Hayes and Harlington (John McDonnell) for securing this debate on an issue that has long been overlooked. I want to take this opportunity to tell Members about James and Becky Glanville, who are in the Public Gallery today. They built a successful nursing home business, and their story shows how hidden credit liabilities attached to interest rate swaps destroyed a family enterprise.
The Glanvilles’ experience is a stark and deeply troubling example of how hidden credit liabilities attached to interest rate hedging products have devastated viable businesses. What began as a successful, family-run nursing home enterprise, built with life savings and years of hard work, was ultimately destroyed by undisclosed risks embedded within complex financial products sold by NatWest, which was part of Royal Bank of Scotland Group at the time.
The family were never informed that these swaps carried significant liabilities, which would be treated as secured debt against their businesses, eroding borrowing capacity and triggering breaches of loan-to-value covenants as interest rates fell, as my right hon. Friend mentioned. The hidden exposures escalated dramatically, putting the companies under severe financial strain and ultimately pushing them into restructuring and insolvency processes. Despite clear regulatory requirements for transparency and informed consent, the risks were not disclosed. Subsequent treatment within restructuring units, including asset devaluation and agreements that allowed the bank to profit further from the family’s losses, compounded the damage.
I will provide some background to the Glanvilles’ case by way of context. The family started their nursing home business in 2002 with their lifetime savings and a mortgage of £744,000. By 2007, the business had grown and needed further borrowing. That is when NatWest insisted that they take out interest rate hedging products as a condition of the loans. The family entered two base rate swaps, but what the bank never told them was that the swaps carried large undisclosed contingent credit line obligations, which were treated as hard secured liabilities on the company’s credit file and counted against the 70% loan-to-value covenant. The hidden credit lines ballooned as rates fell, triggering covenant breaches and damaging the business’ credit standing.
It is an honour to serve under your chairship, Sir Roger. I thank the right hon. Member for Hayes and Harlington (John McDonnell) for securing this vital debate.
I have tried to support the Evans family, my constituents, since I first became an MP, carrying on the work of my predecessor Roger Williams, who was here until 2015. I have got to know Don, Rachel and Paul and their circumstances quite well, and Paul is here with us today. The Evans family have suffered as a result of shocking banking malpractice, and I hope and believe that we have a Minister here today with the professional expertise and intellect to understand what the banks did and put things right.
Don Evans led a family firm in every sense: his wife, two daughters, son, son-in-law and granddaughter all played a part. Springdew Ltd, a pharmaceuticals company, was the kind of firm that made its employees and the wider upper Swansea valley community part of an extended family. Customers included Procter & Gamble, Pfizer, Johnson & Johnson and GSK. In 2007, the business became GSK’s supplier of the year.
Unknown to the Evans family, Springdew was originally put into a 10-year structured collar by Barclays Capital in early 2006 for a notional amount of £800,000, allegedly rolled into an interest rate swap with a notional value of £1.3 million, with Springdew paying the fixed rate of 5.6% for an excessively long period—15 years. The bank was highly motivated to make the term so long because it had secretly added a hidden margin of circa 60 basis points to the swap rate, bookable as a day one profit of circa £85,000. That interest rate swap was included in the 2012 interest rate hedging products remediation process. Barclays stated that the product had been mis-sold and a full tear-up was agreed, with the Evans family refunded moneys paid plus statutory interest.
However, the bank refused to engage with Springdew’s claim for consequential losses, and the hidden credit line had damaged its credit standing, leading to transfer to Barclays’ business support unit, where additional fees were charged. Its experience in the business support unit included manipulated interest rates, false reporting, a refusal to suspend payments, personal and pension funds being injected and forced equipment sales. The hidden credit line also meant that the bank was unwilling to provide additional lending to support growth. The bank has since refused to disclose key internal documents promised in the guide to the review in November 2012. As a company rather than an individual, Springdew has no legal right to a data subject access request, so reform there is desperately needed. If businesses cannot access disclosure from the other side, they are fighting blindfolded. We also need to regulate business lending properly. The world of SME finance should not be the wild west.
It is a pleasure to serve under your chairmanship, Sir Roger. I congratulate my right hon. Friend the Member for Hayes and Harlington (John McDonnell) on securing this very important debate and on his excellent speech to start it off.
I will illustrate the failings of the Financial Conduct Authority in dealing with complaints from businesses who were mis-sold products with high credit liabilities, by using the experience of one of my constituents, Chris, who is in the Public Gallery. In the late 1990s Chris decided to venture into the property market. He secured loans from Nationwide, Birmingham Midshires and other lenders and made a success of his business—so much so that by 2005, he had a property portfolio of 51 properties across north London.
In 2005, Chris decided to refinance the borrowing for his properties with the Royal Bank of Scotland. Chris was sold £3 million in interest rate swaps and £13.4 million in hedging products as part of the refinancing arrangement. Chris states he was not told about any credit risk or commission on the products sold to him, or about the large penalties to exit those credit facilities. In the interest rate hedging products review carried out by the NatWest Group, Chris was assessed as a non-sophisticated customer and has accepted that he had no previous experience of derivatives and relied entirely on RBS’s information and advice.
Chris was told that the bank was fixing the interest rate to protect him from inevitable rate increases. No assessment was carried out to see whether the products were appropriate for his business; no risks were explained and he was never warned about the hidden credit liabilities and break costs that could run into hundreds of thousands—or, as he would later find out in his case, millions—of pounds.
In 2009, as interest rates collapsed on the interest rate swaps, the hidden credit liabilities ballooned, and Chris was now liable for between 20% and 25% of the loan value secured under the bank’s standard commercial charges. That caused Chris huge financial difficulty in repaying the loans. He was also tied in because of the costs on the break clauses, which were also eye-wateringly high. The prohibitive break fees and high credit liabilities locked him in and prevented substantial refinancing, as no other bank would take him on without incurring additional liabilities.
I congratulate my right hon. Friend the Member for Hayes and Harlington (John McDonnell) on securing such an important and timely debate.
Catherine and Nigel Jarvis are of the type of local business owners who become the lifeblood of their communities and local economies. Creative, hard-working and passionate about the Northumberland countryside, in 2007 they looked to buy a property deep in the heart of Hadrian’s Wall country. Their dream was to raise their young family there, while renting out some of the rooms as a bed and breakfast. They approached HSBC for a loan of £175,000 to put towards the family home and business proposition.
It should have been straightforward. As more than 40% of the house was always intended to be used as Catherine and Nigel’s main dwelling, under FCA rules their loan request to HSBC represented a standard home on which a normal residential mortgage should have been offered. An offer should have come from the regulated mortgage side of the bank, where all consumer protections under the mortgage conduct of business rules would apply. What happened instead trapped them in a relationship with HSBC for almost 20 years that has ruined their finances, their credit ratings, their health and their relationships. It has ruined their plans for the future and their dreams as small business owners and has had an irreversible impact on the lives of their two children, who have grown up in the shadow of this trauma.
Instead of a residential mortgage, the couple were explicitly told that they had to agree to a commercial loan with a derivative product—in this case, an interest rate swap—as a condition, without which the Jarvises could not have bought their home. As every member of the public should be able to, they trusted the institution implicitly and proceeded. Even when the suggestion of a derivative product came as a surprise, they believed the bank had their best interests at heart. They were sold the swap on the understanding that it was insurance, protecting them from the risks of increasing interest rates with no up-front cost. The reality was that, on the very first day of the agreement, the product they were sold created hidden profit for the bank and an undisclosed credit line for the couple, acting effectively as a second, secret mortgage on their home. They began their SME journey with extra secured debt and a risk they knew nothing about.
It is a pleasure to serve under your chairship, Sir Roger. I thank my right hon. Friend the Member for Hayes and Harlington (John McDonnell) for securing the debate, for his expert exposition and for the work he has done on this issue over many years.
I will raise case of my constituency neighbour, my right hon. Friend the Member for Redcar (Anna Turley), as she is unable to do because of her Front-Bench position. The case concerns the retired couple Stephen and Gloria Lilley. Their family home, their son’s home and Stephen’s investment portfolio were all tied up as collateral for a commercial loan, without their knowledge or agreement, to provide security for the hidden credit liability on a swap the bank insisted they take out.
Mr and Mrs Lilley had paid off their mortgage and were looking forward to a peaceful retirement but, instead, HSBC persuaded them to raise £455,000 of commercial borrowing, secured first on their business premises. When there was not enough equity in the business premises to cover the undisclosed initial commission—internally classed as “added value”—and the hidden credit liabilities on the swap, the bank required their family home, their son’s home and Stephen’s share portfolio to be used as additional collateral: a total of £960,000.
The first charge on Stephen and Gloria’s home created a regulated mortgage contract under the FSA’s mortgage conduct of business rules. The bank was required to give clear explanations of all risks, including all-moneys charges and contingent liabilities, but despite repeated requests from their adviser for full disclosure of the credit line and the size of the liability, which was needed for consequential loss calculations, HSBC refused to provide the information. Its response was particularly blunt:
“With regard to the rest of the other queries raised…they are not pertinent to the review methodology nor the redress outcome.”
It is a pleasure to serve under your chairship, Sir Roger. I thank my right hon. Friend the Member for Hayes and Harlington (John McDonnell) for securing this debate and for his fight for truth and justice over many years.
Many believe that this issue goes to the very heart of the Hillsborough law, or Public Office (Accountability) Bill, for which I am proud to be the parliamentary lead. My focus is on ensuring that the law delivers a true legacy for the 97 who died at Hillsborough and for all those who have suffered at the hands of a state that failed them. It may also form part of the solution to the issues we are discussing today, because this is about power without accountability, when institutions close ranks and ordinary people are left to fight alone. The Hillsborough law is about driving a cultural change in institutions that resist transparency, and that is precisely where the Financial Conduct Authority is falling short. Time and again, the FCA has failed to give straight answers to straight questions. This is not regulation; it is evasion. We have seen this culture before in Hillsborough, the Post Office Horizon scandal, the contaminated blood scandal and many others. This scandal may well join that damning list of state failure and cover-up.
The 2024 report by the all-party parliamentary group on investment fraud and fairer financial services should have raised alarm bells for the then Government. A former FCA employee described it as having “the worst staff culture” of their 40-year career. We have heard that whistleblowers were sidelined, dissent suppressed and an official line enforced. This is not a regulator acting in the public interest—it is an organisation protecting itself. When regulators fail, people pay the price: water, energy, finance—the list goes on.
Let me turn to hidden credit liabilities. The APPG report highlights serious concerns about the FCA’s handling of the mis-selling of interest rate hedging products to small businesses, including the failure to address hidden credit line risks and a pattern of evasion when challenged. Take the case of Andrew Candy. In 2008, he sought a simple fixed-rate loan. Instead, he was sold a complex product without being told by the seller at HSBC about hidden credit lines, margin calls or the risks involved. He was later hit with a £70,000 break cost that had never been disclosed. His business collapsed, and he sold his family home. What followed was 17 years of stress and injustice, with no proper accountability or resolution. That story is familiar to many sitting behind me in the Public Gallery.
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There are so many other cases. One of the cases I have dealt with involved reading the last letter of a man who committed suicide in the hope that his insurance would pay out to save his family home. Many whistleblowers have courageously come forward. In fact, that is what led to the creation of BankConfidential. I will cite just one example: Mark Wright, a former Royal Bank of Scotland manager. One of our former colleagues, Norman Lamb, supported him. Mark provided internal evidence of the bank deliberately defaulting customers to improve capital ratios and targeting customers for debanking and insolvency. He even named the person who taught trainees how to forge customer signatures on bank documents. Mark experienced incredible levels of personal stress, and I congratulate him on his courage in coming forward, but the FCA failed to act.
The failure of the system to reform or to deliver justice and compensation to victims has been the outstanding theme of our discussions and debates as an all-party group. Numerous schemes, inquiries and reports were meant to deliver meaningful reform and provide victims of banking misconduct with access to justice and redress. We have had the Foskett panel, the Swift review of interest rate hedging products, the Cranston review, the Tomlinson report, the Project Lord Turnbull report by Sally Masterton, the parliamentary commission on banking standards and various Treasury Committee inquiries. The truth is that they have had little effect: victims remain out of pocket and meaningful reform still has not happened.
The result is that trust in the system has now been shattered. The FCA’s Financial Lives survey shows that less than half the public trust the financial sector and its regulatory framework. That is a damning indictment, and it is problematic particularly among SMEs, where we need business confidence to stimulate growth in our wider economy.
Let me conclude. The all-party group, having consulted so many experts, victims and constituents, has come to the conclusion that the only way forward is some form of royal commission or equivalent inquiry to address the deep structural flaws in the system and the widespread injustices that remain unresolved. We need to establish what happened and who was responsible; otherwise, there is a real risk of history repeating itself, and we cannot stand by and allow that to happen.
In the short term, we are demanding at least a specific inquiry into hidden credit and the role of the FCA. That inquiry must be fully independent, well resourced and—if it is to have confidence in it—judge led, and it must be granted statutory provision under the Inquiries Act 2005.
This all arose because many of us, as individual MPs, were approached by constituents who have suffered. We must remember that it is ordinary people who have been the victims of this tragedy, and some of them are with us in the Public Gallery. They have kept the flame of hope for justice alive, and I urge them to maintain their efforts and to continue to inspire us with their righteous indignation and justified anger. However, I do not want to be here in years to come—as we were in 2016—dealing with the same problems and with a system that is not fit for purpose, with more victims making representations to us. I hope today that the Government will accept there is a need for an independent inquiry, that we can present the evidence to it and that we can successfully reform the system to protect our financial services and, more importantly, the people—our constituents—who rely on them.
In Northern Ireland, more than 50 bank branches have closed in just three years—11 of them were in my constituency—so the impact has been very real. As physical, face-to-face banks disappear, the digital shadow of credit grows. We see a banking void, where vulnerable people are pushed towards unregulated, hidden lending because the high street banks have abandoned them. That cannot be right. I therefore look forward to the Minister’s response. I am sure she grasps the issues, because there will be little or no difference between her constituency and mine.
We welcome the FCA’s current redress schemes, but on behalf of our constituents, we demand more than just retrospective apologies. Apologies are words; actions are what really matter. I therefore have three asks of the Minister. First, we want transparency by default and no more discretionary commissions hidden in the small print of motor finance. Secondly, we want SME equality. Our businesses deserve the same protections as retail consumers when dealing with complex credit products. In my constituency, and indeed across Northern Ireland, small and medium-sized businesses are the backbone of our economy; they are incredibly important. Thirdly—this is the big ask—we want regional sensitivity. The FCA must recognise that a one-size-fits-all approach does not work when Northern Ireland has the highest vulnerability rates in the United Kingdom. To add to that third point, I would ask the Minister to please engage with the relevant Minister and the banks in Northern Ireland—we need special consideration.
In conclusion, I say this to the Minister and the regulator: the people of Northern Ireland are not asking for handouts; they are asking for a fair game plan. It is time to pull back the curtain on these hidden liabilities and to ensure that the consumer duty is a reality in every town across Northern Ireland, Scotland, Wales and England. It cannot be just a slogan in London; it has to be for everyone.
Such products were classed by the Financial Services Authority, as it was then, as a complex financial instrument that should normally be purchased only by investment professionals, yet they were sold to inexperienced clients such as the Glanvilles as free, no premium protection against interest rate risk. The additional costs and credit risks had to be disclosed to comply with the FSA’s conduct of business rules. Those rules stated that a firm can grant credit for such products if the customer has given prior consent in full knowledge of any resulting interest and fees. James and his family did not know of the risks or provide any written consent for them.
That raises the issue of the FCA’s role, which has already been mentioned. The FCA’s redress scheme failed to account for the impact of those hidden credit lines. By excluding that critical feature from the regulatory review, the system denied victims fair compensation and meaningful justice. The interest rate hedging products review was allegedly set up to compensate victims such as Mr Glanville and to put them back in the position they would have been in had the swaps not been sold in breach of the rules. All the banks signed an undertaking that the FSA rules would be complied with in the review, but instead the FSA and FCA agreed separate sales standards with the banks, which specifically excluded any mention of hidden credit liability and its effect. The regulator therefore effectively colluded with the banks to keep this undoubted fraud covered up and reduce compensation costs.
In 2019, Mr Glanville’s legal team calculated that, with the losses on the properties that were sold under value, the consequential losses and the interest, the family were owed £6.3 million. What they have received to date from the bank is absolutely nothing. As people know, the Glanville family case is not isolated; it reflects a wider systemic failure that affects thousands of SMEs. That underscores the urgent need for a full independent investigation into hidden credit liabilities and the associated regulatory failures, which must lead to the establishment of a fair and comprehensive redress scheme. Businesses and families that have suffered such a profound harm deserve accountability, transparency and ultimately justice. I hope the Minister will reflect on that in her response.
The business had been flourishing, but the bank’s behaviour brought all of that to an unnecessary end. The family invested a further £600,000 of their own money to keep the business afloat—money that is now with creditors. Springdew was the last major employer in the upper Swansea valley, providing much-needed jobs. I must stress that when businesses are destroyed through banking misconduct it is not just founders and shareholders who suffer, but employees and the wider community too.
The stress has had direct medical consequences. In 2011, Don suffered a perforated ulcer and was hospitalised for a week. In January 2024, a month after Springdew began liquidation, Don suffered a major stroke. He was discharged early on a Friday due to his wife’s deteriorating condition; that same night she was hospitalised with pneumonia, an illness that can be brought on by sustained stress. The situation worsened when the family learned that she had cancer, which she had kept secret, not wanting to add to the family’s burden. Although the financial consequences have been devastating, the greatest losses have been of health, of time and of life; one of Don’s daughters also sadly passed away.
The Fraud Act 2006 defines three types of fraud: false representation, failure to disclose information and abuse of position. The Evans family believe that they have been the victims of all three. There was a brief glimmer of hope for justice when the Business Banking Resolution Service was established, but the guilty banks engineered ways to deem Springdew ineligible, as they did with the vast majority of claimants, with a staggering 76% of claimants being turned away. The family were then diverted to the Financial Ombudsman Service, which was an equally unsatisfying experience.
There are clear systemic failures in how financial injustices are handled. The Financial Conduct Authority’s purpose is to regulate financial services, set standards and hold those that fail to meet those standards to account. Clearly, it has failed to help the Evans family and so many others. The FCA deliberately excluded key features of derivatives and consequential losses from its remediation exercise, and direct correspondence with chief executive officer Andrew Bailey and chair John Griffiths-Jones produced nothing meaningful. Springdew relied on a system it was told to trust. It was misdirected by official process, suffered catastrophic personal and financial harm, and followed the rules throughout.
My constituents have been victims of serious banking misconduct and have been terribly let down. As far back as 2014, Parliament made a commitment to the Evanses and others like them that their cases would be reviewed and that fair and reasonable redress would follow. That commitment has not been honoured. Justice is long overdue, and I urge the Minister to relook at the Evans case and the others raised today and commit to ensuring that those businesses will finally benefit from a redress scheme that will provide true compensation and fairness.
As a result of Chris’s financial situation, his property portfolios were transferred to RBS’s global restructuring group, where exorbitant penalty charges and demands for revaluations made trading impossible for Chris. The GRG then took over the management of the properties, charging 10% plus monthly management fees. All 51 properties were eventually repossessed and sold at auction below their value, leaving substantial shortfalls. Chris was then pursued by RBS, which brought bankruptcy proceedings against him. As a result of the hidden credit liabilities that came with the interest rate swaps and fixed-rate loans sold to Chris, the business he spent 20 years building was destroyed in just three.
Chris is not alone in having had his business ruined as a result of hidden credit liabilities: hundreds of other small businesses suffered. As the House of Commons Library briefing for this debate states, the 2012 Financial Services Authority review concluded that lenders,
“did not adequately disclose to borrowers the cost of exiting an IRHP…failed to ascertain borrowers’ understanding of risk…sold products which unsuitably ‘over-hedged’ borrowers (overexposed borrowers to risk)”.
The 2012 FSA-operated redress scheme that followed, which differentiated between “sophisticated” and “non-sophisticated” customers, was criticised not only by the Treasury Committee but by John Swift, who was appointed by the Financial Conduct Authority in response to the Treasury Committee’s report. Despite that, the Financial Conduct Authority chose to ignore the findings of the review that it had commissioned. It refused to budge, saying that
“the decision to treat sophisticated and non-sophisticated customers differently in the case of IRHPs was justified”
while acknowledging that “there were shortfalls” in its decision-making processes, governance and recordkeeping. In its very thorough report on hidden credit lines, BankConfidential noted that
“the FCA announced publicly:
‘The FCA also found no evidence that RBS artificially distressed and transferred otherwise viable SME businesses to GRG to profit from their restructuring or insolvency.’…‘The independent review did not find that RBS had deliberately made businesses worse off so that it could profit from GRG selling them off’”.
My constituent would beg to differ.
The FCA should inspire confidence and act with integrity and robustness. The FCA’s decision making and perceived closeness to the banks undermines that. Its role in dealing with the aftermath of the hidden credit liabilities debacle has fallen well short of the standards we expect, so I urge the Minister to ask the FCA to look again at the redress scheme and allow excluded businesses to get the justice they deserve. I also ask the Minister to ensure that the FCA is a truly independent and transparent regulator, and that it restores the trust and confidence that we all expect from it.
When rates crashed in early 2009, the undisclosed “out of the money” position covered by the hidden credit line exploded that risk, damaging Catherine and Nigel’s internal credit grade and making the loan look far riskier to the bank. Eventually, they were threatened with foreclosure unless they agreed to move into the bank’s restructuring unit, even though Catherine and Nigel never missed a payment and had no knowledge of the additional risk now being used against them. Since 2007, they have poured everything they could into trying to untangle themselves from an agreement they never would have signed had its true scope been disclosed to them. That has cost them hundreds of thousands of pounds, with an untold cost to their mental and emotional wellbeing and physical health.
The then FSA’s conduct of business rules, which applied in 2007, stated that, before granting any credit or loan in connection with an investment business, such as the interest rate swap, the bank was required to make and record an assessment of the couple’s financial standing based on the information disclosed; take reasonable steps to ensure that arrangements for the loan or credit, and the amount concerned, were suitable for them; and obtain Catherine and Nigel’s prior written consent to the maximum amount of the loan or credit and to the amount or basis of any interest fees to be levied in connection with it. The bank did none of those things. In making the interest rate swap a condition of the loan it offered, it hid the credit risk from the couple and made applications for those credit facilities in their personal names without their knowledge or agreement.
The hidden credit line made the agreement toxic from the start. A key factor in the lack of justice for Catherine and Nigel has been the FCA’s handling of hidden credit lines as a specific factor. At the initial IRHP review scheme, the FCA told reviewers to treat the hidden credit line as an internal bank risk and ignore it in considering almost everything that Catherine and Nigel suffered—directly derailing their claim to redress.
The decision was made that the Jarvises’ losses were not foreseeable to the bank. In reality, their losses were not only foreseeable but expected, due to that hidden credit line. Hidden credit line practices and the profit motivations of banks have destroyed the lives and livelihoods of not only Catherine and Nigel but thousands of families and businesses across the country. I strongly support the calls for an investigation into the specific issue of hidden credit liabilities. Without that, and without a proper inquiry into the FCA’s own conduct on the matter, Catherine and Nigel, along with thousands of others, will continue to live without remedy for the financial destruction they have endured.
As personal guarantors, Mr and Mrs Lilley had an absolute right to know the full extent of the bank liabilities and risks they were personally guaranteeing. Had the credit line risk and the undisclosed up-front commission been properly disclosed, the resulting losses and damage to the business would have been entirely foreseeable. Yet the FCA, working in agreement with the banks, deliberately designed the sales standards used in the interest rate hedging products review to exclude any consideration of that damage or harm when assessing consequential losses, as the BankConfidential report confirms.
The stress was devastating. Both Stephen and Gloria have suffered heart attacks in recent years, which were directly linked to the financial worry caused by the mis-sale. Speaking in the House in December 2016, my right hon. Friend the Member for Redcar described how the couple had endured sleepless nights and felt powerless as the bank held their retirement security in its hands. When HSBC later admitted that the product had been mis-sold, it offered only a limited swap-for-swap redress, providing an alternative cap product that still left the Lilleys substantially under-compensated. In fact, they received no consequential losses at all—just interest on what was classed as overpayments on the product. How can a product that destroyed a family’s business and lives for over a decade lead to no recognised loss?
Across the entire IRHP review, the banks paid out £2.2 billion in total redress for around 20,000 acknowledged mis-sales. Yet only £46 million—just 2%—was paid for consequential losses, even though most victims ended up facing insolvency and personal bankruptcy. That was no accident: the non-disclosure of the hidden credit line risk was deliberately kept out of the review methodology so that the devastating downstream harm could be totally ignored. This is another textbook example of why there must now be a fully independent investigation, completely outside the control or oversight of the FCA, into all forms of hidden credit liabilities across every bank, and why a fair redress scheme must be established for every business and family ruined by this practice. No couple should have their family home put at risk or endure years of severe stress and ill health simply because a bank failed to disclose the true risks and costs of the products it sold them.
I am sure that my right hon. Friend the Member for Redcar can make all the correspondence—including letters demanding explanations on the regulated status of the home loan and the hidden credit line—available to the Minister and her team, in the hope that they may be of assistance to her in considering what remedial actions may be considered. Hopefully, the catalogue of gangster-like behaviours perpetrated by these banks can finally persuade the Minister and her colleagues to launch an independent, judge-led inquiry into an utter scandal that has bedevilled far too many businesses for far too long.
Even attempts at compromise were met with further loss and distress. This is not just a banking failure; it is a regulatory failure due to a fear of standing up to the big banks. Shamefully, the FCA stood by and did nothing. Worse, there are concerns that it obscured the truth, including the existence of hidden credit lines, and colluded in the practices, as we have heard from hon. Members today.
Here lies the deeper issue: the FCA is a private company limited by guarantee. It has immunity from civil liability and can resist scrutiny in the courts. That cannot stand. If there is a gap through which the FCA can escape accountability, it is our duty to close it, because no regulator should be above the law, no institution beyond scrutiny and no citizen left to fight alone. Andrew Candy’s case is not isolated, as we have heard. It is a warning of what happens when power operates in the shadows. As parliamentarians, we must shine a light, demand truth and stand with those who have been wronged.
I understand that amendments to the Hillsborough law are being considered to extend the duty of candour to regulators, including the FCA. The case for that will be compelling, certainly given what we have heard today, and is likely to command strong support in both this place and the Lords. If the Government take forward the call for an inquiry, as I hope they will and I fully support, the Hillsborough law could be a huge element in getting truth, accountability and justice. For people like Andrew Candy, it cannot come soon enough.