You’ve been offered a redress – what do you do now?

It has now been a year since the FCA set up a swaps compensation scheme for the 32,000 SMEs affected by these IRHPs and this month saw the first 210 cases receive their initial payout. However, many more companies are now being sent their redress letters, detailing the compensation that the FCA believes they are entitled to as a result of the mis-selling.

The FCA describes the redress as ‘putting the customer back in the position they would have been had the regulatory failings occurred, including any consequential loss’. However, they are adamant that all cases will be reviewed on an individual basis, taking into account the evidence presented. To ensure parity, the FCA has also set up an independent review body to give impartial guidance on the claims.

When companies receive their redress letter, it will state what the bank is willing to pay to make good any mis-selling. In addition the bank will usually ask the company to provide details of any consequential losses or other costs suffered as a result of the mis-selling. The onus to identify, evidence and calculate these costs are handed to the company.

If you’ve been offered redress, what do you do?

The problem is that consequential losses are much harder to quantify than the straightforward numeric value of an overpayment. It is not as simple as purely calculating how much the company overpaid each month. Therefore, it is vital that you seek expert advice from a specialist accountant, who will be able to discuss with you the potential areas of claim. Below are some pointers for some areas you should be looking at:

Potential areas of claims

· Overdraft interest – for those who incurred interest through additional overdraft borrowing to pay for the IRHP costs, or lost interest through lack of savings

· Bank charges – where charges were incurred relate directly to the IRHP

· Professional costs incurred – for services used as a direct result of the IRHP, such as additional legal costs

· Missed opportunities – to account for the lost opportunities the company was unable to take due to excessive overpayments. This is the most complex area and would in most circumstances require careful and expert consideration, both for the reasons of the missed opportunity and the financial impact

· Forced sale – where a business was forced to sell assets due to lack of cash-flow caused by the IRHP or to meet requirements set by the bank (eg. Loan to value ratios)

The FCA has recently posted advice online to help businesses calculate their consequential loss. However, this only provides a very brief outline and is not an extensive or exhaustive guide so it is advisable to seek professional advice.

Rafi Saville, Partner at Fisher Forensic, part of chartered accountancy firm HW Fisher & Co.