1 May 2015 by

The Power of Judicial Review

Friday 24 April 2015 was an important date in the fight against the banks (and some might say the Financial Conduct Authority) on the issue of interest rate swap mis-selling.

The Administrative Division of the High Court heard an application from Holmcroft Properties Limited for permission to commence Judicial Review proceedings in relation to its redress outcome under the Financial Conduct Authority’s (‘FCA’) Review Scheme and the role played by the “impartial” Independent Reviewer.  In this case, the Independent Reviewer was KPMG LLP, who was the Respondent to the application.  However, given the potential gravity of the outcome, both the underlying bank (Barclays) and the FCA supported KPMG LLP by joining as Respondents, enabling each party to make submissions to the judge.

Kenneth Parker J heard the application, and in broad terms was asked to consider the following question: was KPMG acting on behalf of the FCA in its role as Independent Reviewer, and therefore exercising a public function?

The Respondents (including the FCA) argued that the answer was no, which no doubt would appear perverse to the hundreds, if not thousands, of businesses for whom the scheme has failed.  The FCA openly claims that the role of the Independent Reviewer is to be its eyes and ears on the ground, and that it is essential to ensuring that the banks review each mis-selling case fairly.

This is evidenced in practice.  I have been instructed on behalf of numerous businesses who have received offers under the scheme that have no basis in law or logic and which, upon the release of the contracts upon which the scheme is based in February earlier this year, show that the banks have fallen foul of their legal obligations to the FCA.  Upon raising such issues directly with the FCA, their responses usually (among other things) (i) sate that they are not able to intervene on individual cases, and (ii) highlight that the Independent Reviewer will have ratified the bank’s decision, thereby providing effective and impartial scrutiny.  More broadly, the FCA has continuously relied on the scrutiny of the Independent Reviewer to justify its decision to establish this scheme on the basis of voluntary agreements with the banks, as opposed to invoking its powers under section 404 of the Financial Services and Markets Act 2000.

Now, by distancing itself from the role of the Independent Reviewer in response to this application, the FCA appeared to be in a worrying state of contradiction.  His Lordship, Kenneth Parker J, agreed, rejecting the submissions of the Respondents and ruling that the Independent Reviewer does exercise a public function in the role of the “Skilled Person” in the FCA’s Review Scheme, and that its actions are therefore subject the jurisdiction of Judicial Review.

As such, the matter will now proceed to a substantive hearing to assess whether or not it exercised that function legally.  The consequences could be enormous for those businesses that the scheme has failed.  But perhaps more troubling is the questions that the FCA must surely now face about the manner in which it established the scheme in the first place.

If you have any queries in relation to this issue raised above or you would like advice in relation to your mis-sold interest rate derivative, please contact Simon Bishop on 020 7288 4797.

29 April 2015 by Michael Culver

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