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The Economic Secretary to the Treasury (Sajid Javid)
This is the first opportunity that I have had to serve under your chairmanship, Ms Dorries, and it is a real pleasure. I congratulate my hon. Friend the Member for North Herefordshire (Bill Wiggin) on securing this important debate. I acknowledge the strength of his feeling on this particular subject. He has put forward a considered and eloquent argument to the Chamber, and made a strong representation on behalf of his constituent.
I am sure that everyone present is keen to see a speedy conclusion to the Financial Conduct Authority review of the mis-selling of financial products. It is only right that businesses that have been mis-sold products are compensated accordingly.
The Government have been clear from the start that such practices are unacceptable. We take extremely seriously the abuse that has taken place, and we are determined that any wrongs that have been inflicted on businesses should be put right. My hon. Friend shared with us the example of allpay Ltd, which is a company in his constituency that was sold a hedging product but is not eligible for the FCA review. I am sure that my hon. Friend will understand if I do not go into the specifics of that particular case right now, but I am happy to look into any case, including the one that he has raised, in further detail.
I want to take this opportunity to address the key points that my hon. Friend has raised. First, he challenged the definition of an SME as used by the FCA in its review. He has argued instead that all businesses, not just the smaller ones, should be given support and assistance from the FCA in claiming compensation.
The FCA used the criteria for non-sophisticated customers, as set out in the UK Companies Act 2006, in its objective test. That is because those criteria are used for classifying companies that are subject to the small companies regime, and that have lighter reporting requirements. They are therefore the companies that are less likely to have staff or advisers with appropriate knowledge and skills to advise directors on the purchasing of financial instruments.
Moreover, I understand that the FCA review also changed the sophistication test in January to ensure that certain customers who were classified as sophisticated under the Companies Act test are instead classified as non-sophisticated and therefore brought into the scope of the review. I am sure that my hon. Friend will welcome that move, particularly as his constituency in Herefordshire, like mine in Bromsgrove, has many farmers. Had the change not happened, many farmers who typically have larger work forces and balance sheets than other SMEs could have been excluded.
The Government have been clear that where a business lacks the necessary skills and knowledge to understand fully the risks of such products, it should receive the appropriate redress. However, we do not agree that all businesses should have access to the FCA review. Instead, there needs to be a defined cut-off point where more sophisticated businesses are able to take responsibility for understanding the products or services they are entering into. There will be organisations that took one of these product with a full understanding of the risks involved if interest rates changed, and it is not for the Government to perform due diligence for such large, sophisticated organisations. Any such action would weaken incentives for businesses to act sensibly when purchasing financial instruments, and would potentially open the floodgates—a word my hon. Friend also used—to any businesses that have lost out from a financial transaction. I am therefore confident that the FCA has found the right balance to ensure that all non-sophisticated businesses fall inside the scheme.
My hon. Friend also mentioned the limitation placed on the type of financial products that are part of the FCA review. Given the widespread sale of the particular products included in the review to small businesses, it is reasonable that the FCA has established the parameters of its review on that basis. The FCA did that based on a full review of what products were sold to which businesses and by whom, and the full review includes all those products that were widely sold to small and unsophisticated businesses.
The FCA must also consider how to allocate its resources economically and efficiently, and it therefore seems reasonable that the review is focused on the products where the bulk of sales took place.
In closing, I reiterate that the Government take extremely seriously the abuse that has taken place in very many cases.
Bill Wiggin
I am most grateful to the Minister for taking the trouble to reply to this debate. He is right that there are some things in there, but will he agree to think about how a regulator such as the FCA should proceed in the future so that we get regulation across the board, and not just for specific groups of companies? It strikes me that it does not matter how many employees a company has or how big its balance sheet is, it should be behaving responsibly. In the case of larger companies, more jobs are put at risk if financial mis-selling takes place, and we rely on the FCA to be a regulator. I would be grateful if he bore that in mind.
Sajid Javid
Yes, I can bear that in mind. My hon. Friend makes a characteristically good point. Throughout this debate, he has raised a number of important issues, but I hope that he accepts that the FCA is an organisation that needs a degree of strong independence so that it can make robust decisions and not be influenced for the wrong reasons.
Tessa Munt
Will the Minister consider this particular situation? If a company has gone into administration because of the mis-selling of an interest rate hedging product, it is by definition excluded. If it is in administration, only the insolvency practitioner can represent the interests of that company, but the insolvency practitioner is often appointed by the bank and is extremely loth to sue the bank for redress, and if it does, it has a direct interest, which means that there is a conflict of interest in that sort of situation. The company can never get redress because, effectively, the company owner has gone down the pan—his house will be gone and so on. It is an appalling situation. Will the Minister address that point for me?
Sajid Javid
The hon. Lady raises an important point. The issue of insolvency, insolvency law and our approach to that is, as she will know, looked at in great detail by the Department for Business, Innovation and Skills. Given the connection between that issue and the one we are discussing, I will make sure that my right hon. Friend the Business Secretary is aware of it and responds accordingly.
Let me reiterate that the Government take extremely seriously the abuse that has taken place in many cases and I am determined that these wrongs will be put right. I want to see a quick solution to the mis-selling of interest rate hedging products to allow those businesses to continue to operate and contribute to the ongoing recovery of the UK economy. Once again I congratulate my hon. Friend the Member for North Herefordshire on securing this debate.