Hidden Credit Liabilities: Role of the FCA

Mark Garnier Excerpts

Tuesday 14th April 2026 Westminster Hall

[Mark Garnier (Wyre Forest) (Con)]

Thank you, Sir Roger, for chairing the debate. I congratulate the right hon. Member for Hayes and Harlington (John McDonnell) on bringing this incredibly important subject up for discussion. At the heart of the debate are individual people—people who have lost their businesses, their livelihoods and, in some cases, their health and, indeed, their lives. Let me be crystal clear: where there has been malpractice, those affected should and must be supported and compensated. Every stakeholder in this issue, from the banks to the business owners—certainly the business owners—should agree with that.

I have a certain amount of experience of this. I was a member of the Treasury Committee from 2010 to 2016 and a member of the parliamentary commission on banking standards. We looked at the Financial Services Act 2012, which created the Financial Conduct Authority and the Prudential Regulation Authority to replace the previous regulator, the Financial Services Authority, which had been an abject failure. The FSA was created under the Financial Services and Markets Act 2000, which started the tripartite regime that singularly failed our economy and resulted in the financial crisis in 2008.

There is absolutely no question but that what we saw prior to the financial crisis, when we had that credit bubble, were some very bad practices. We looked into this again on the parliamentary commission on banking standards. The legislation that came out of that, the Financial Services (Banking Reform) Act 2013, was originally started due to the LIBOR scandal. None the less, we looked into the fundamental malpractices going on in banks, and what we saw, absolutely beyond a shadow of a doubt, was a mismatch in the balance of interests between shareholders, customers and staff that was massively in the favour of staff. That is what we found, and that fundamental malpractice by the financial services system is what those two Acts of Parliament were designed to resolve.

What we are looking at today is three important areas: those who were sold interest rate hedging products, which most of this debate has been about; those who were placed into RBS’s global restructuring group; and those who were on fixed-rate loans in Northern Ireland. I want briefly to go through each. On the hedging products, it was common practice back in the 2000s for businesses to be sold variable rate loans, as well as interest rate hedging products, which were known as collars and caps. In principle, they are not inherently bad products in themselves, as they offered the borrower greater flexibility. If people are borrowing money at 6% and are capped at 8%, but the quid pro quo is that they are collared at 4%, that actually works for them, because it protects them from a spike in interest rates.

Of course, the problem was that we did not see a spike in interest rates; rather, we saw a massive collapse of interest rates during the financial crisis. Interest rates dropped from 575 basis points in 2007 to just 50 basis points in 2009, and that is where borrowers were left out. Of course, we have also seen mismanagement of Government—I am the first to admit that, under Liz Truss’s Government, we saw interest rates spike at 15%. Collar and cap arrangements would have protected borrowers from that, so there is a benefit to them. However, I completely understand that we are looking here at where there has been malpractice behind these contracts.

It is incredibly important, though, to look at the problem with the Financial Services Authority, the precursor of the Financial Conduct Authority, which identified that lenders failed to ascertain borrowers’ understanding of risk. That is why it was right that the nine banks involved compensated customers to the tune of £2.2 billion. I appreciate that we are talking about those who were not compensated, but there was a recognition that there was a problem.

On the global restructuring group, the Financial Conduct Authority identified a number of clear failings in customer service and poor interactions. I understand that NatWest bank has accepted that the conduct fell far below the standards expected and has paid out something in the region of £100 million in compensation. In the grand scheme of things, that is not a huge amount of money; none the less, it has accepted that. However, it seems from the results of the regulatory reviews by the FCA, as well as the judicial proceedings, that it has not properly compensated people.

I should also point out that banks did a great deal to support businesses around the time of the financial crisis. That might sound counterintuitive to hon. Members, but one of the great discussions we had on the Treasury Committee was about the surprisingly small number of businesses that had gone bust. There was an argument at the time that banks were artificially supporting businesses while they had bad cash flow and damaged balance sheets, and that forcing companies into liquidation would crystallise the deficit of the loan on to the banks’ balance sheets. There was an argument that they were doing the wrong thing by keeping alive what were then referred to as zombie businesses. This whole issue was incredibly complicated after the financial crisis, and there was an awful lot going on in various different parts of all this.

I want finally to turn to the fixed-rate loans, which are mostly the ones used by Ulster Bank in Northern Ireland, which again is a subsidiary of NatWest. The allegation is that the banks took out their own interest rate swaps, booking them in customers’ names and adding a related credit bump. That is a serious allegation, suggesting that the bank staff recorded up-front profits for those swaps and earned personal commissions. The FCA was absolutely right to investigate it, but following its investigation, it said:

“We have seen no evidence that would lead us to conclude that further supervisory work and/or intervention with Ulster Bank/NatWest was required.”

I recognise that many will disagree with that conclusion, but even so, it cannot be argued that the FCA did not look into it. This comes down to what we want the FCA to achieve. The hon. Member for Liverpool West Derby (Ian Byrne) said that the FCA is not accountable, but actually, it is accountable to Parliament through the Treasury Committee, and it is the job of Members on the Committee to ensure that the FCA does the job that we want it to.

When we created the FCA in 2012, the idea was that there would be greater focus on consumer protection. The Financial Services Authority was set up to do the prudential regulation and the conduct regulation. The FCA was set up purely to do the financial conduct regulation, which is looking at how people are looked after. The Prudential Regulation Authority was then set up to do the nuts and bolts of the financial system—to make sure that we did not see a failing in the banking system rather like we had during the great financial crisis. I recognise that many colleagues will feel that process has not happened, particularly in the case we are talking about, but we have to accept that the FCA is an independent body. As I say, it is accountable to Parliament through the Treasury Committee, but it is an independent body.

In a similar debate in 2018, my right hon. Friend the Member for Salisbury (John Glen), when he was Economic Secretary to the Treasury, said:

“We can set the law, but we then must be bound by it and respect the judgment and independence of the FCA.”—[Official Report, 18 January 2018; Vol. 634, c. 1127.]

To the extent of the law we created, he is absolutely right. In the same way that we respect the judgment of the Supreme Court, even if we disagree with it, we should respect the judgments of the Financial Conduct Authority. It is up to the Minister to come up with a solution, but does she agree with that, or has the FCA got this fundamentally wrong? If so, what line will the Government take? Will they deliver the judge-led judicial review that people are looking for? I hope she will be able to answer that.

In closing, I want to return to those who have been affected. SMEs make up 99% of all businesses in the UK, so it is not an exaggeration that they are the lifeblood of our economy. When they succeed, we all benefit. They need confidence that institutions and financial services are backing them and are there to serve them and to make their businesses work. This issue has damaged that trust, and many have experienced painful losses. We need to rebuild that trust. I am not sure whether a judge-led inquiry is the right step, but I am open to it. The decision on whether to undertake one, however, is ultimately for the Government. I look forward to the Minister’s remarks.