The process for compensating victims of mis-sold interest rate hedging products is under scrutiny at the High Court, where a property company alleges that the scrutiny of its claim by auditor KPMG was procedurally unfair.
Holmcroft Properties is applying for permission to seek judicial review of the handling of its case by KPMG, the independent reviewer appointed to oversee the redress scheme operated by Barclays following discovery by the FCA of widespread failings in the sales of interest rate hedging products by banks. In its role as independent reviewer, KPMG is intended to assess whether Barclays is making fair decisions on mis-selling claims and the amount of redress to be awarded.
The permission hearing focuses on whether a body like KPMG is even amenable to judicial review, which involves questions of whether it is solely accountable to the party to which it is contracted – in this case Barclays – or to the public. Both the bank and the FCA are represented in the hearing.
Holmcroft says that, looking at the function being performed by KPMG as an independent reviewer, it is amenable to judicial review.
Malcolm Birdling, representing Holmcroft, argued: “KPMG’s functions are woven into a system of regulatory control. They are there to assess and evaluate that what is being offered is fair and reasonable.”
He said that it is precisely the degree of independence brought to the process by KPMG under the scrutiny of the FCA that “grafted onto this process the relevant public element”.
In accordance with the redress scheme, Barclays reviewed its sale to Holmcroft of hedging products and concluded that they had been mis-sold. It offered redress of more than £440,000, but rejected a claim for consequential losses. KPMG reviewed that decision, and concluded the redress offered was “appropriate, fair and reasonable”. It is that decision which Holmcroft seeks to attack in these proceedings.
KPMG, Barclays and the FCA are all defending the process.
Andrew McHale, of Manchester-based McHale & Co solicitors, said that the case arises out of concerns about the lack of transparency and independence of the process.
He said: “As the independent reviewers are paid by the banks and is often from one of the banks’ biggest business partners, it is difficult to naturally trust the decision-making process. What adds fuel to this is the FCA’s and banks refusal to publish the guidance against which the mis-selling and redress amount is being measured against.”
If permission is granted, he added that a judge at the full hearing would have to consider whether the FCA has successfully prevented the banks from unduly influencing the review process, adding: “It is basically a chance for the courts to decide if the FCA has being doing its job in policing the scheme properly.
“If the judicial review is then heard and is successful, it would allow businesses who have gone through the FCA review process, and have had unsatisfactory findings made, the right to hopefully have their cases looked at again.”
This, he said, could lead to a large increase in compensation to customers.
Holmcroft Properties Ltd v KPMG LLP Administrative (Kenneth Parker J) 24 April 2015
