At a Glance
On 7 March 2025, the High Court dismissed an application for judicial review by the All-Party Parliamentary Group on Fair Banking (APPG) against the FCA (the Judgment). The application challenged the 2021 decision of the FCA not to take further action against banks who were subject to the FCA’s redress scheme regarding the sale of interest rate hedging products (the FCA Decision).
The Judgment held that the FCA Decision was made rationally and fairly. The Judgment reflects the FCA’s wide discretion in making decisions to achieve its statutory objectives and is therefore of interest to all regulated financial institutions.
The All-Party Parliamentary Group on Fair Banking v The Financial Conduct Authority [2025] EWHC 525 (Admin) Judgment is available here.
The FCA Redress Scheme
In 2012, the FCA's predecessor (the FSA) agreed a voluntary redress scheme with various banks (the Redress Scheme). The FCA implemented the Redress Scheme following complaints by consumers that they were mis-sold interest rate hedging products (IRHPs) between 2001 and 2012. IRHPs are derivative products sold to SMEs to protect them from interest rate volatility. Borrowers complained that they had been mis-sold the IRHPs, that the IRHPs were a condition of lending, and that there were excessive termination fees associated with their IRHP agreements.
While the Redress Scheme was voluntarily agreed, the banks were required to appoint “skilled persons” to oversee their review of eligible complaints under s.166 FSMA. Under the rules of the Redress Scheme (which can be found here), banks were required to review all sales of IHRPs made since December 2001 to “non-sophisticated” customers. The sophistication of SME customers was measured in relation to their annual turnover, balance sheet value, and number of employees.
The Swift Review and Sophistication Test
Following a recommendation by the Treasury Select Committee in 2015, Mr John Swift KC carried out a “lessons learned” review of the “design, implementation and oversight” of the Redress Scheme (the Swift Review). The Swift Review identified various deficiencies, including the FCA’s decision to exclude sophisticated customers from the scope of the Redress Scheme.
Mr Swift KC found that sophisticated customers were excluded after only "the briefest possible consideration,” without “clear evidence as to how the eligibility test was identified as appropriate, nor any impact analysis.” The Swift Review concluded that there was no proper basis for the differential treatment of sophisticated and non-sophisticated customers, both of which were “entitled to equal regulatory protection.”
While the FCA accepted most of the findings of the Swift Review, it did not accept that it was wrong to exclude sophisticated customers from the scope of the Redress Scheme. The FCA confirmed that it would not be taking any further action with regard to the mis-selling of IHRPs nor would it re-open the Redress Scheme.
The Judgment
The APPG applied for a judicial review of the FCA Decision, relying on the Swift Review, on the following grounds:
- Irrationality: The FCA's Decision – its rejection of the finding of the Swift Review and its decision to not take further action – was irrational; and
- Procedural unfairness: The FCA’s failure to consult interested persons prior to publishing the FCA Decision was procedurally unfair.
Irrationality
The Judgment held that the FCA Decision did not meet the threshold of irrationality required for the judicial review to succeed. The Court recognised that there was scope for reasonable disagreement with the Swift Review findings on the sophistication criteria in the Redress Scheme, and that it was rational for the FCA to depart from its recommendations and take no further action.
Relevant to the High Court’s finding that the FCA Decision was rational were the following factors:
- there was no presumption that the FCA should adopt the Swift Review findings, nor was the FCA required to show that the Swift Review findings were irrational [103];
- the FCA need not have a “good reason or very good reason or a cogent reason” to depart from the recommendations of the Swift Review [para 123]; and
- the FCA were entitled to take into account its statutory consumer protection objective under FSMA and has “a wide measure of subjective discretion … in seeking to provide an appropriate degree of protection to consumers and to achieve the defined statutory objectives” [para 143].
It was also found to be rational for the FCA to disagree with the Swift Review’s criticism of the sophistication test. The differentiation between the eligibility of customers based on sophistication was necessary for the FCA to implement the Redress Scheme on a voluntary basis and therefore obtain efficient redress for the customers it was seeking to protect.
Procedural Unfairness
The APPG’s second argument – that there was procedural unfairness due to a failure to consult before the FCA Decision– also failed. Where Parliament intended to impose a duty on the FCA to consult it had prescribed such a duty in legislation (i.e. in FSMA). The High Court noted that the FCA were aware of the dissatisfaction of excluded customers, regardless of any consultation, because the relevant criticisms had been included in the Swift Review. These factors had been considered as part of the FCA Decision.
Comments
The High Court has shown a reluctance to intervene with the discretion afforded to the FCA by statute. While the Judgment recognises that the FCA's power is not unfettered and that the FCA will be held to the usual public law standards of reasonableness and rationality, it has a wide margin of discretion. This Judgment is particularly emphatic of the FCA’s wide discretion given the application was brought by the Parliamentary Group for Fair Banking, and followed a 15-month review by an independent KC.
This Judgment builds on a recent trend of cases, including last year’s Court of Appeal judgment in Bluecrest (on which we wrote a separate update, here). We might reasonably predict that the Judgment could embolden the FCA to draw its own parameters in any future redress schemes.
Whether the FCA impose a redress scheme following the upcoming UKSC judgment in the motor finance litigation will be of interest to regulated firms. On the one hand, the FCA might be inclined to implement a mandatory redress scheme under s.404 FSMA. A s.404 FSMA redress scheme must relate to misconduct for which consumers would appear to have a remedy if they brought proceedings. If the UKSC judgment is clearly adverse to lenders, the FCA might see that as a natural trigger to implement a s.404 redress scheme.
On the other hand, the FCA might be attracted to the flexibility of a consensual redress scheme to be agreed with lenders, particularly given the wide discretion which the courts have afforded the FCA in agreeing their terms.
