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“The longest journey begins with a single step.”

Mao Zedong

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The decision to sell to SMEs

IRSA Is complex financial product:

• Original market

• Part of a hedging strategy

• Experienced buyers able to negotiate price & terms

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“A conscious process of deceit.”

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Did not market to SMEs who had continuing finance

facilities

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A conscious process of deceit:• Identification of the SME owner

• Asset rich

• Borrowing requirement

• Limited financial expertise

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A conscious process of deceit:• Timing of approach

• The perception of need

• It is a requirement

• Salesmen presented as advisors

• Presented as “no cost” alternative

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A conscious process of deceit:• Non-disclosure of Contingent Liability

calculation

• Non-disclosure of CL’s impact on borrowing capability

• Non-disclosure of bank’s profit

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A conscious process of deceit:• Non-disclosure of incentive

arrangements

• Standard form documentation inconsistent with facts

• Libor

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IRSA’s are inappropriate for SMEs:

• Longer than associated loan• Greater value than associated loan• Terms enabling bank to terminate• Exclude Margin• Risk of substantial cost of termination

– SMEs require termination at modest cost

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IRSA is inherently inappropriate for an SME

Our first achievement – to explain the issue

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Our achievements:• Membership of Bully-Banks

• Press / Media Coverage

• Lobbying Campaign

• Survey of membership

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Our achievements:• Members contacting and meeting

MPs

• Submission of survey results to MPs

• Alliance with MPs - Back Bench Business Debate in Parliament

• The FSA Investigation

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Bully-Banks’ 14 Point Plan:• Roll over of IRSA payments

• Maintenance of banking facilities

• Relief from VAT and NI payments

• Definition of mis-selling

• Timetable

• Information from banks

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A simple definition of mis-sale:• Over hedging – value and term

• A requirement of loan

• No information re break costs

• Mis-description of Derivatives Expert

• Unsuitable given educational background or work history

• Unsuitable given future plans

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29th June:

FSA’s Agreement with the Banks

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“Serious Failings in the sale of IRSAs to small and medium sized

businesses and that this has resulted in a severe impact on a

large number of these businesses.”

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Failings:• The bank’s decision whether there

has been a mis-sale

• The bank to decide what constitutes “reasonable redress”

• No clear process

• No timescale provided

• No urgent relief

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BB’s Subsequent Actions:• Lobbying

• Met with the FSA

• Met with Ministers & Shadow Ministers

• Met with the Treasury

• Met with four banks

• Conferences

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• Until January 31st no evidence that the FSA Scheme will provide a solution

• We are planning on the basis that the banks will continue to be unresponsive and intransient

• We continue to plan on the basis that the regulator will let us down again

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Ordinary People in Business Limited

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The Company’s objectives are:• to represent the interests of SMEs adversely affected by

the sale of financial products (including Interest Rate Swap Agreements and other derivative instruments) to them by their banks, – in their dealings with their banks following the sale of such

financial products,– in their dealings with government, financial regulators etc in

connection with the sale of financial products to them and the adverse consequences thereof.

• to prompt a change in the culture and processes of:– banks in their treatment of small and medium sized businesses

so that ordinary people in business are protected from the unfair actions of their banks, and

– of the relevant financial regulators so that in the future they vigorously and properly protect ordinary people in business

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Our “Milk Stool” Strategy:

• Legal Campaign

• Parliamentary Campaign

• Regulator and the Banks

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Legal Campaign:• Signal determination to banks

• Create pressure

• Preserve rights

• Best present the case

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Members’ requirements:• Cannot fund solicitors’ and counsel’s

fees

• Cannot risk bank’s costs

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Members MUST be legally represented

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Representation:• For FSA Scheme Review

• For complaint to Ombudsman

• For letter before action

• For litigation

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Parliamentary Campaign• MPs have delivered:

–Media coverage

–Pressure on regulator

–Pressure on government

• The APPG

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Parliamentary Campaign• Strength: individual contact with MPs

• Members must meet their MPs:

–To explain the issue and it’s consequences

–To brief the MP by providing written evidence from Bully-Banks

–To ask MPs to support the APPG

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Parliamentary CampaignObjectives:• Monitor the regulator • Pressurise the banks to provide

urgent relief• Pressurise the banks to provide

redress• Prompt a change in the culture and

processes of the banks

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The Regulator and the Banks

• We seek tripartite conversations:

–Process of review

–Mis-sale criteria

–Principles of “fair & reasonable redress”

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31st January 2013:

The FSA Announcement

Of Pilot Study Findings

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• Over 90% of Cases Mis-sold

• Definition of “Sophisticated” changed

• Criteria for “mis-sale”

• Baseline for “redress”

• Consequential Loss

• Suspension of Payments

Last week first proposals made by two banks to small number of customers.

Concerns:• Substitution of IRSA by another IRSA

• Consequential loss

• Continuing bank facilities

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Separate Categories of Member:

• Unsophisticated Borrower

• Sophisticated Borrower

• Embedded Swap / TBL

• Those in administration / liquidation

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Bully-Banks’ Role re FCA Redress Scheme:

• Education / preparation • Communication• Monitoring:

– Review Process– Banks’ Conduct– Regulator’s Performance

• FCA & Ministers

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Bully-Banks’ Role re Sophisticated Borrowers:

• Communication

• Group Organisation

• Sharing of information

• Sharing of evidence

• Use of Bully-Banks’ organisational assets

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Bully-Banks’ Role re Embedded Swaps / TBLs:

• Clarity from Yorkshire & Clydesdale Banks

• Definition of the product and FSA’s ability to review

• Campaign for inclusion in FSA Scheme

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Bully-Banks’ Role re Borrowers in Administration / Liquidation:

• Legal Research

• Potential Funding

Banks’ reluctance to accept responsibility continues

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