A group of MPs is calling on the Financial Conduct Authority to launch an investigation into the “unanswered questions” surrounding tailored business loans provided to small and medium-sized enterprise customers by Clydesdale Bank (CYBG).
Kevin Hollinrake MP, the co-chairman of the All Party Parliamentary Group on Fair Business Banking, has written to the FCA calling for an investigation into CYBG “without delay”.
However, a CYBG spokesman said the bank “strongly refuted” any suggestion Clydesdale Bank had not fully investigated historic cases involving SME (small and medium-sized enterprise) customers.
In his letter, Mr Hollinrake states that senior figures from National Australia Group Europe - the former owners of CYBG - gave evidence in June 2014 to the Treasury Select Committee (TSC) as part of the committee’s report into conduct and competition in SME lending. In July 2014, two representatives from the FCA also gave evidence to the TSC.
Mr Hollinrake’s letter states: “At the time, your representatives from the FCA confirmed frustrations in that the structuring of these fixed rate IRHP’s (interest rate hedging products) were tailored to fall outside the scope of regulation.”
The letter to the FCA says: “The report confirms that your representatives wrote twice to the Treasury, requesting more powers to deal with Clydesdale’s TBL’s (tailored business loans) without success.
“Clydesdale Bank committed to carry out an internal investigation, one which would mirror the investigation being undertaken by the FCA into similar loans which did fall within the realms of regulation.
“As most of us now know, and as confirmed in the Westminster Hall debate on October 9 2018, they did not conduct a review of any worth and within nine months of making the promise to investigate, most of their customers’ loans were timed out in March 2015.
“The All Party Parliamentary Group on Fair Business Banking’s research has uncovered a promise by Clydesdale Bank’s principals, when questioned at the Treasury Select Committee by Jesse Norman MP.
“They were asked that, if requested by the regulators..to bring these products within the ‘perimeters’ of your review, would they concur to this request?’
According to Mr Hollinrake’s letter, their answer was: “If the regulator was keen to do more with us, we would co-operate as we do with them on all other matters.”
A customer who has taken out a loan with an embedded interest rate hedging product that is a ‘swap’, may be faced with exactly the same repayment features and the same break costs as a swap, Mr Hollinrake’s letter states.
It continues: “Also the approved person’s rules gives the FCA a clear route, under the statements of principle to investigate where a controlled function individual ..is party to or has knowledge of a product that has been designed to escape regulation...”
“In view of this, and the fact that there are many unanswered questions relating to this product, the APPG requests that you take Clydesdale Bank up on this publicly stated pledge and secure answers on the same basis as they would have had to do if these products had been regulated.
“We trust that you welcome news of this breakthrough information, and that you will take Clydesdale Bank up on their promise, so that finally this product can be investigated for what it actually is.”
A spokesperson for CYBG said: “We strongly refute any suggestion Clydesdale Bank has not fully investigated historic cases involving SME customers. The bank has dedicated substantial effort in recent years to engage openly and transparently with customers as part of a wide-ranging remediation programme.”
The CYBG spokesman said the bank had conducted thorough investigations into complaints from SME customers, “all of which we believe have been in line with the regulator’s expectations.”
The spokesman added: “We are confident that reviews of our historic business lending products have been conducted in a fair and rigorous manner.”
A spokesman for the Financial Conduct Authority said the regulator would respond to Mr Hollinrake’s letter.
The Financial Conduct Authority is the conduct regulator for 58,000 financial services firms and financial markets in the UK.
It is also the prudential regulator for more than 18,000 of these firms.