Hidden Credit Liabilities: Role of the FCA

Bambos Charalambous Excerpts

Tuesday 14th April 2026 Westminster Hall

[Bambos Charalambous (Southgate and Wood Green) (Lab)]

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.

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.