Hidden Credit Liabilities: Role of the FCA

Debate between John McDonnell and Gregory Campbell

Tuesday 14th April 2026 Westminster Hall

[John McDonnell (Hayes and Harlington) (Lab)]

I beg to move,

That this House has considered hidden credit liabilities and the role of the Financial Conduct Authority.

I will explain the genesis of this debate, Sir Roger. I chair the all-party parliamentary group on investment fraud and fairer financial services. The group was established some years ago as a result of hon. Members being approached by constituents who had experienced scandals in the delivery of financial services and the failure of regulatory bodies to address their concerns. It was chaired effectively by the hon. Member for Harrow East (Bob Blackman), who has now gone on to greater things as the Chair of the Backbench Business Committee. I thank him for enabling this debate to take place.

The scandal that has come before our APPG is the use of hidden credit lines, which has caused such serious harm to so many small and medium-sized enterprises, and caused personal disasters for many individuals and their families. We have drawn on the evidence presented to us by constituents, specialist advisers and the reports of BankConfidential, a specialist whistleblowing service for banking staff. Put simply, the story commences with a large number of SMEs approaching their banks for a loan and some of the banks then attaching to the loan a derivative such as an interest swap, supposedly to protect the loan against the risk of interest rate changes, and establishing a hidden credit line.

Lorraine Morris, an expert and specialist derivative lawyer, gave evidence to us on what she found:

“My research confirms that, far from mitigating risk, these instruments were deliberately engineered to transfer significant, undisclosed, and uncapped risk directly onto the customer. The mechanism was the concealed creation of a credit-line liability, booked against the customer’s assets from day one. This contingent obligation was not a notional figure; it was a hard liability that directly impacted the customer’s credit grade”.

Generally, when such a loan is taken, there is an agreed loan-to-value covenant. According to Ms Morris, the application of the derivative and credit line mechanisms impacted on those covenants and

“pushed viable businesses into a state of artificial distress. The sale of products as ‘protection’ when their fundamental structure achieves the opposite is a profound and fraudulent misrepresentation.

It is a profound tragedy that these banking frauds have pushed individuals to the brink, resulting in devastating loss of life, ill-health and destruction of families. As a legal advocate for justice, I believe this affront to human dignity demands not only our deepest sorrow, but a relentless and unwavering pursuit of accountability.”

That is what we are about today.

To understand the behaviours of the banks more fully, we drew on the evidence provided by Ian Tyler, a former senior banking executive who has used derivatives since the 1980s to manage interest rate risk for some of the UK’s largest banks. I will quote Ian at some length. He explained:

“The fundamental truth that has been buried by the banks and the FCA is that when a bank executes an interest rate derivative, such as an interest rate swap, it is required by prudential regulation to mark a counterparty credit risk limit to cover the Potential Future Exposure. This credit limit is a hard credit limit as the exposure generates a risk weighted asset that requires the bank to hold capital in support.

All hard credit limits are typically included in a bank’s Loan to Value security covenant calculation and so the moment a customer executes a derivative their LTV % increases and this weakens their credit standing. This situation was made materially worse in…2008 when in response to the failure of Lehman Brothers, policy makers reduced Bank Rate to 0.5%. This…led to a material increase in the credit line marked for the derivative as both the Current Exposure and the Potential Future Exposure increased, pushing many SMEs into the position where their LTV % was in breach of their security covenant.

However, as the bank had invariably not told the customer about the derivative credit line, in clear breach of conduct regulation, the bank often forced a technical breach of loan covenant through some other mechanism and then transferred the business to their so-called Business Recovery Unit where most businesses were subsequently put into administration.”

Many in the Public Gallery would testify to that.

What was the motivation of the banks? Hidden credit liabilities generated huge up-front revenues, bonuses and commissions. Worse, when the financial crisis hit, they became a mechanism for destroying viable businesses, some already in breach of lending covenants on day one, because of the undisclosed liability that had been taken on. The potential financial upside was so significant that whistleblowers revealed that staff at the state-controlled NatWest Group were encouraged to send victory emails when they successfully brought down a business that could then be feasted upon, with the bank sometimes buying distressed assets directly from the victims of such frauds.

There are too many examples of that, and some of those affected are with us in the Public Gallery. Alongside the banks’ predatory behaviour, there has also been a catastrophic regulatory failure, associated with a deliberate policy by the Financial Conduct Authority and, before that the Financial Services Authority, of siding with the banks and often with Treasury policy under successive Governments, rather than the innocent business owners who were being fleeced at the time.

The FCA has repeatedly and deliberately failed to act. I will give one example of participants’ experience from our all-party group. In November 2022, Lord Prem Sikka, Steve Middleton of BankConfidential and banking derivatives expert Ian Tyler, whom I have quoted, met the FCA to explain the hidden credit liability scandal in detail. They related what The Times assistant business editor James Hurley described across four articles as financial and accounting fraud, including theft from Ulster Bank fixed-rate loan customers, and all the hard evidence was shared. In our view, the FCA should have immediately launched an inquiry at that stage. Instead, it let the NatWest Group mark its own homework. When the bank concluded it had done nothing wrong, the FCA took no meaningful action, even deploying the astonishing argument that the fraud that had occurred was not criminal fraud.

The FCA’s unfitness for purpose is not a new observation for many of us here. On 1 February 2016, Conservative MP Guto Bebb led a Commons debate on the motion,

“That this House believes that the Financial Conduct Authority in its current form is not fit for purpose”.

Nothing meaningful came out of that debate or has happened since. In many people’s eyes, that has left the FCA still not fit for purpose, with Parliament having failed in its duty to fix it.

Where was the Treasury in all of that? The Treasury turned a blind eye and its motivation was simple. It needed the banks to do whatever was necessary to shore up their balance sheets after the global financial crisis, having already made the taxpayer bail them out. As I mentioned, where that has occurred the financial and emotional consequences for victims have been devastating in the extreme. The scale of the carnage has been horrific, with widespread forced insolvencies; suicides and early deaths; thousands of repossessions; and broken families. Many business people were made to believe that they had failed through their own fault, when in reality tens of thousands of businesses were deliberately targeted for insolvency.

[Mr Gregory Campbell (East Londonderry) (DUP)]

I congratulate the right hon. Member on securing this debate. As he referred to earlier, the conditions that pertained in 2008 and the financial crash have resulted in banks making massive changes, but the banks should not be allowed—or encouraged by the FCA in some instances, as he has outlined—to punish viable businesses rather than promoting those viable businesses and trying to pursue faulty loans, which is what they should be doing.

[John McDonnell]

That theme runs through many of the reports that we have had from constituents about the failure of the FCA to protect them—to ensure that regulation was implemented to protect them. There were also elements of almost turning a blind eye and collusion, and that is the reason for the anger that people feel.

Let me press on because the figures that we have heard in the past need to be challenged. As I said, many people thought that they had failed themselves, but in reality tens of thousands of businesses were deliberately targeted. Internal reports confirm that not 16,000, as claimed by the FCA, but 3 million customers were placed in NatWest’s non-core division, effectively a waiting room before being pushed into the notorious global restructuring group, or Lloyds’ equivalent business support unit.

There are so many examples, but I will give just one. Steve and Joan Finch spoke movingly at our summit last November. They took out what was meant to be a simple fixed-rate loan from Lloyds bank to buy Bredbury Hall hotel. Alongside that loan, the bank added the credit liabilities of a derivative, a swap, with a starting hidden credit liability of £1 million, rising to £3 million. Those undisclosed arrangements generated £179,000 in secret up-front commissions. A further £1 million was taken in fees when the bank processed the case through its so-called business support unit, widely criticised as an asset-stripping mechanism.

The business ended up there because undisclosed credit liabilities created a loan-to-value risk of 136%, against a permitted maximum of 70%. Despite being a thriving business, Bredbury Hall was manoeuvred into administration. Stephen Finch was bankrupted and the family had to raise £600,000 to pay off vulture fund Cerberus, to which the loan had been sold, to save their home.

Suspicious of what had happened, the Finches contacted Greater Manchester police with evidence of all three offences that had been committed under the Fraud Act 2006. The police took the matter seriously and investigated, but when they asked the FCA for technical assistance, the FCA refused, so last June the police closed the case, citing three reasons: lack of FCA assistance, insufficient resources for a complex investigation, and concern that examining the case would oblige them to investigate numerous similar ones.

There are so many other cases. One of the cases I have dealt with involved reading the last letter of a man who committed suicide in the hope that his insurance would pay out to save his family home. Many whistleblowers have courageously come forward. In fact, that is what led to the creation of BankConfidential. I will cite just one example: Mark Wright, a former Royal Bank of Scotland manager. One of our former colleagues, Norman Lamb, supported him. Mark provided internal evidence of the bank deliberately defaulting customers to improve capital ratios and targeting customers for debanking and insolvency. He even named the person who taught trainees how to forge customer signatures on bank documents. Mark experienced incredible levels of personal stress, and I congratulate him on his courage in coming forward, but the FCA failed to act.

The failure of the system to reform or to deliver justice and compensation to victims has been the outstanding theme of our discussions and debates as an all-party group. Numerous schemes, inquiries and reports were meant to deliver meaningful reform and provide victims of banking misconduct with access to justice and redress. We have had the Foskett panel, the Swift review of interest rate hedging products, the Cranston review, the Tomlinson report, the Project Lord Turnbull report by Sally Masterton, the parliamentary commission on banking standards and various Treasury Committee inquiries. The truth is that they have had little effect: victims remain out of pocket and meaningful reform still has not happened.

The result is that trust in the system has now been shattered. The FCA’s Financial Lives survey shows that less than half the public trust the financial sector and its regulatory framework. That is a damning indictment, and it is problematic particularly among SMEs, where we need business confidence to stimulate growth in our wider economy.

Let me conclude. The all-party group, having consulted so many experts, victims and constituents, has come to the conclusion that the only way forward is some form of royal commission or equivalent inquiry to address the deep structural flaws in the system and the widespread injustices that remain unresolved. We need to establish what happened and who was responsible; otherwise, there is a real risk of history repeating itself, and we cannot stand by and allow that to happen.

In the short term, we are demanding at least a specific inquiry into hidden credit and the role of the FCA. That inquiry must be fully independent, well resourced and—if it is to have confidence in it—judge led, and it must be granted statutory provision under the Inquiries Act 2005.

This all arose because many of us, as individual MPs, were approached by constituents who have suffered. We must remember that it is ordinary people who have been the victims of this tragedy, and some of them are with us in the Public Gallery. They have kept the flame of hope for justice alive, and I urge them to maintain their efforts and to continue to inspire us with their righteous indignation and justified anger. However, I do not want to be here in years to come—as we were in 2016—dealing with the same problems and with a system that is not fit for purpose, with more victims making representations to us. I hope today that the Government will accept there is a need for an independent inquiry, that we can present the evidence to it and that we can successfully reform the system to protect our financial services and, more importantly, the people—our constituents—who rely on them.

Outsourcing: Government Departments

Debate between John McDonnell and Gregory Campbell

Wednesday 29th January 2025 Westminster Hall

[John McDonnell (Hayes and Harlington) (Ind)]

I have come to this debate because of our recent experiences of visiting picket lines, with regard both to Government Departments and, in particular, the railway sector. I have been a trade union rep in the public sector, but I have also been a manager in the public sector: I was chief executive of the Association of London Government and I also was in a London borough, managing large numbers of staff.

When you have the scale of disputes that we have, I think we have to recognise that there is an underlying industrial relations problem that has to be addressed. I would invite the Minister to join us on some of those picket lines over the coming weeks, because the disputes in the Government Departments are starting again next week and we will have picket lines for several Government Departments around Whitehall.

I have tried to identify the underlying problem causing these disputes, and when we talk to the workers themselves on the picket lines, it is strikingly obvious. Some of them—well, all the ones I have met—are on, I think, shocking levels of low pay. When you talk to them, particularly those based in London, you wonder how they are surviving on the pay that they are receiving. Also, they have conditions of work that I thought we had eradicated years ago. I am talking about lack of access to sick pay, some of them being paid below legal minimums at the moment, and many of them being without any pension rights whatever apart from the statutory pension. So we have a group of people who are on low pay, in insecure work, and feeling extremely exploited, so they have no other resort but to take industrial action. I want to point out what is interesting. I invite everyone to come on those picket lines and look around them, because the vast majority of those workers are from the BAME community; so there is also an issue with inequality in our employment practices as well.

Various unions have provided us with briefings for the debate today, and most of them have done surveys of their members to identify what is the issue facing their members that they should be putting to management. Some of the survey results are stark. The RMT did a survey, and I want to talk about the response that it had from its members. It has about 10,000 members who have been outsourced on trains; Transport for London, for cleaning, has 2,000; and Network Rail has 2,500. What happened then? In the survey results that came back, 80% of the workforce who had been outsourced were saying that they were struggling to meet their basic needs: to pay the rent, pay for food, and so on; 90% were worried about bills coming in. What was interesting was that more than 80% of them were saying, “We come to work when we’re sick, because we can’t take the time off—we can’t even afford to be sick.”

That is why the disputes are taking place, and they involve the same old companies: G4S, ISS, OCS and Mitie. These are companies that have made extensive profits out of the outsourcing, and the bulk of their profits is obviously made from the low pay that they are forcing upon their members of staff. It causes real anger among the workforce when they are seeing these companies paying out high dividends to shareholders, while at the same time they will not pay the staff a decent wage.

There needs to be an understanding in Government that if we are to have decent public services, there has to be a re-examination of how we provide those public services. I agree with what has been said by the deputy leader of our party, and by the Chancellor, which is that we need

“the biggest wave of insourcing…for a generation”,

because I think that is the way to tackle insecure work, low pay, and so on.

My hon. Friend the Member for Middlesbrough and Thornaby East (Andy McDonald) raised the other issue about outsourcing, which is that it has an impact on productivity. If a worker is exploited, if they are not paid properly, if they are worried at work about how they are going to survive, it does impact on how they deliver the service. That is inevitable; it would have an impact on all of us. As a result we have found that productivity issues are a real problem in some of these sectors. Unfortunately, because of the old Treasury Green Book model, that is resulting in even more outsourcing being justified: it becomes a vicious circle.

[Mr Gregory Campbell (East Londonderry) (DUP)]

The right hon. Gentleman said that he fully agreed with the deputy leader of his party. I wonder whether there was an undue emphasis on the word “deputy” rather than “leader”.

[John McDonnell]

I am lost on that one—completely. There are conspiracy theories here that I have never even heard of or even thought of, so I will pass on that one.

What we are asking the Minister for today is a strategy. The first step in that strategy must be to meet the unions themselves. A number of unions have asked whether they can they have a meeting whereby, Department by Department, they can work with the Government, looking at what contracts there are, seeing how those contracts can be brought in in this biggest wave of insourcing in a generation, and how the legislation, particularly the Employment Rights Bill that is progressing through Parliament at the moment, can include the initiative and rights and responsibilities to bring that insourcing about. There is a strategy that can be developed alongside the Government’s procurement policy, that can address all these issues and will be cost-effective for the Government in the long term.

UK-India Trade

Debate between John McDonnell and Gregory Campbell

Wednesday 25th January 2012 Westminster Hall

[John McDonnell (Hayes and Harlington) (Lab)]

I congratulate the hon. Member for Wimbledon (Stephen Hammond) on securing the debate. It comes at a vital time in the trading relationship between these two countries, because the European Commission and the Government of India are aiming to conclude the free trade agreement during the EU-India summit on 8 February in Delhi. The next fortnight is therefore a critical opportunity—the last opportunity—for us to try to influence that agreement.

I urge the Minister to do all in his power to ensure that it is not just a free trade agreement, but a fair trade agreement. A number of significant and expert non-governmental organisations working in this field have raised serious concerns about the consequences for some of the poorest people in India of the free trade agreement as proposed by the EU at the moment, and are seeking amendments to the agreement in this last phase.

When I raised the question with Ministers at the Department for Business, Innovation and Skills, I was referred to the conclusions of the European Union’s sustainability impact assessment. The Minister pointed out that as a result of the FTA, there would be an overall reduction in both rural and urban poverty. The study does come to that general conclusion, but there are sections in the report, particularly relating to the rural poor of India, that give cause for concern. It demonstrates that there will be an increase in the wealth of the rural poor only if they are, for example, connected to the supply chains that will flow from the FTA and if they are in suitable locations, with adequate infrastructure. The problem is that most of the rural farmers do not operate with adequate infrastructure and are not organised in the way in which the FTA describes; nor is domestic policy likely to change that. Therefore, the impact assessment by the EU, as against one by our Government, is, in this and many other areas of the report, at best wishful thinking or at worst simply determined to prove the case for the FTA.

[Mr Gregory Campbell (East Londonderry) (DUP)]

The hon. Gentleman touches on an important point. The UK farming industry and, in particular, small businesses that excel in the international market can assist in poor rural areas in India, especially in terms of delivering higher yields through best practice, and can assist in promoting trade between the UK and India.

[John McDonnell]

That is exactly right, and it is one of the issues that need to be dealt with in the final negotiations so that people are appropriately placed and organised to enable that to happen.

In contrast to the EU’s assessment of the FTA is the more realistic and deeply worrying alternative assessment of the potential impact of the FTA that was published only a few weeks ago, in December, by organisations working in this field: Misereor, the Heinrich Böll Foundation, Anthra, the Third World Network and Glopolis.