A View From The Exchange: FCA wins judicial review of IRHP redress scheme

Many businesses would be happy to be described as "sophisticated", but some UK SMEs must rue the day. A judicial review brought on their behalf in relation to historic mis-selling by banks has failed.

The High Court (Freedman J) has ruled that the Financial Conduct Authority (FCA) was justified in its decision to partly reject the findings of a 2021 review into its regulatory intervention by independent reviewer, John Swift KC.

In 2012, the FSA set up a redress scheme with 9 UK banks to provide compensation to small and medium sized business customers who had been mis-sold interest rate hedging products (IRHPs) from 2001. The scheme ran for a number of years and delivered over £2.2bn of redress to eligible customers. However, many customers failed the eligibility criteria and received no redress (other than what they could get through FOS, direct complaints or the Courts, if any). Customers who were deemed "sophisticated" have spent more than a decade arguing that the eligibility criteria was arbitrary and unjustified. The FCA's position was that it was a reasonable, pragmatic decision which helped to secure the banks' voluntary agreement to the scheme, allowing for the majority of customers to receive compensation sooner.

In 2021, an independent review by John Swift KC into the FCA's regulatory intervention found, amongst other things, that the FSA/FCA had been wrong to exclude so-called "sophisticated" customers from the compensation scheme. The FCA accepted many of Swift's recommendations, but not the finding that "sophisticated" customers were wrongly excluded from the scheme. Those customers had hoped that the Swift Review would allow them to re-open the scheme and finally seek compensation. The FCA disagreed and declined to re-open the scheme. This decision has now been tested in a High Court judicial review case brought by a cross-party group of MPs who argued that the decision was irrational and procedurally unfair.

On Friday 7 March 2025, Judge Freedman held that that it was not irrational or unfair for the FCA to reject the findings of the Swift Review on the sophistication criteria, and that there was scope for the FCA to reasonably disagree with the findings of the independent reviewer. The Court accepted the FCA's arguments that it would be difficult to re-open the scheme and address claims so long after the mis-selling occurred (nearly a quarter of a century in some cases). Ultimately, the decision leaves "sophisticated" customers without the redress they sought, and reaffirms the FCA's authority to make difficult (and sometimes unpopular) regulatory decisions.