The All-Party Parliamentary Group On Fair Banking, R (On the Application Of) v The Financial Conduct Authority [2025] EWHC 525 (Admin)

Mr Thomas Roe KC (instructed by Hausfeld & Co LLP) for the Claimant.

MR JUSTICE FREEDMAN:

I The nature of the application

• This application for judicial review arises out of the sale of tens of thousands of Interest Rate Hedging Products alleged to be unsuitable that caused customers losses. The regulator, the Financial Services Authority (“FSA”) agreed a redress scheme with various banks (“the Scheme”). The Scheme excluded various customers deemed to be too “sophisticated” in accordance with what has been called the Sophistication Test. Subsequently, the Financial Conduct Authority (“the FCA”), as successor to the FSA, committed to a review of the Scheme including the Sophistication Test. Mr John Swift KC (then QC, who is referred to in this judgment without discourtesy as Mr Swift), a leading authority on competition law and with an acknowledged expertise to report in this case, was appointed as an independent expert (also referred to in this judgment as “the Reviewer”) with a view to examining the quality and effectiveness of the supervisory intervention. On 26 November 2021, and amended on 7 February 2022, Mr Swift issued a report on the Lessons Learned Review (“the Review”). The report made a number of recommendations including designing redress schemes to avoid unnecessary complexity, improving consultation with stakeholders and considering using statutory powers to obtain compensation and restitution.

• On 14 December 2021 the FCA published its response to the Review (“the Response”). In a section of the Response headed ‘next steps’, the FCA explained that it had concluded that action should not be taken by way of using its powers to require any further redress to be paid to interest rate hedging product customers. The FCA did not agree that the FSA was wrong in limiting the scope of the Scheme to less sophisticated customers within the Private Customer/Retail client class. It decided that it was not appropriate or proportionate to take further action (“the Decision”).

• In this judicial review, the Claimant, an unincorporated association of Parliamentarians now known as the All-Party Parliamentary Group on Fair Banking, challenges that Decision as being unlawful, that is that it fell below the common law standards of reasonableness. It submits that it was an irrational decision to reject the findings of the Review concerning the Sophistication Test and to decide to do nothing further. It also submits that there was procedural unfairness in failing to consult stakeholders who were not consulted prior to announcing its decision about the response to the FCA’s Response to the Review.

• The FCA contends that it did not act irrationally and that there was no duty to consult. The FCA further contends that it is unlikely that the outcome would have been different. On 29 June 2023, permission to proceed by way of judicial review was granted by Fordham J: see [2023] EWHC 1616 (Admin). He summarised why the case was of general importance. He said that “the case will determine this question: whether a maintained merits disagreement was a legally sufficient reason not to accept a key evaluative conclusion of an independent review. The case will determine this question: how the standards of reasonableness and legally adequate reasons operate in such a context.” As regards the procedural issue, he said that that was of general public importance because it would determine “whether the authority – anticipating calls for action – could fairly organise the procedural sequence of events so as to exclude the informed opportunity for voices to be heard, in an attempt to persuade, while its mind is ajar”.

II Legislative framework

• It is necessary to consider the legislative framework. In the consideration of whether the Defendant acted rationally in the decisions which it took, it is necessary to have regard to its powers and duties drawn in general terms. It exercised discretions pursuant to those powers and duties, but subject to the usual checks of public law.

(i) The Consumer Protection Objective

• S.1B of the Financial Services and Markets Act 2000 (“FSMA”) provides that, in discharging its general functions, the FCA must (so far as is reasonably possible) act in a way which is compatible with its strategic objective and advances one or more of its operational objectives, including the Consumer Protection Objective.

• The Consumer Protection Objective is now defined in s.1C(1) FSMA (and was until 1 April 2023 defined in s.5 FSMA) as ‘securing an appropriate degree of protection for consumers‘ . ‘Consumer‘ has the wide definition given in s.1G FSMA which includes the customers who fell within and outside the Scheme created by the FSA.

Continue reading this Judgment here.