This article was first published on the Huffington post on 30 January 2013.
Notwithstanding the rich diversity of these businesses, what these entrepreneurs and wealth creators have in common is that that they work hard and take risks, provide jobs and growth; they innovate and challenge established market players. This not only brings rigour and competition to the market, securing a better deal for the consumer, but it also helps the UK pay its way in the world.
So their importance to our economy cannot be underestimated and, yes, it has become somewhat of a cliché to say it but collectively they are the "lifeblood" of our economy - they provide almost two thirds of private sector jobs and half of private sector turnover.
That is why the mis-selling of interest rate swap products to SMEs is so distasteful and such a scandal. Neither of the companies I mention above were victims of this but many SMEs have been, which highlights, yet again, why a culture change is needed in the way our banks serve the real economy.
Over the last decade or so, mainly between 2005 and 2008, thousands of small business customers were mis-sold complex hedging products by their banks which they thought would protect them against the risk of interest rate movements on loans they took out. This turned out to be the start of a nightmare for them when, having thought they were purchasing protection against rate rises, they found they ended up paying more when interest rates fell. What's more, when the businesses sought to cancel the hedging product they took out, they were often told they would have to pay hundreds of thousands of pounds for the privilege. Businesses have been forced under as a result - dreams shattered, lives ruined.
Following an investigation last year, the FSA found the banks had engaged in some thoroughly shabby practices when it came to the sale of these hedging products, including: poor disclosure of exit costs; failure to ascertain the customers' understanding of the risk; "non advised" sales straying into advice; "over-hedging" (with the amounts and/or duration of the hedge not matching the underlying loan); and rewards and incentives for bank employees being a driver of the sale of these products.
Consequently in June and July last year 11 banks signed up to a scheme to provide redress for and review the sale of these products - in an effort to speed up the compensation of businesses that were victims without the need to resort to litigation which, in any event, many of the businesses lacked the funds to pursue. Under the agreement, the banks assessment of whether redress in the form of compensation should be made to a customer will be scrutinised and determined by an independent reviewer. A pilot exercise has been carried out with a selected number of customers from each bank signed up to the agreement to assess their approach and ensure it is delivering the right outcomes for customers. Now that exercise is complete, the FSA will announce its findings on the operation of the scheme and what changes are necessary shortly.
At the end of last year, Ed Miliband, the leader of the Labour Party, myself, shadow small business minister Toby Perkins and shadow financial secretary Chris Leslie met with the FSA to give voice to the concerns that have been expressed to us by those who have fallen victim to this scandal. As the pursuit of justice for those businesses who were victim to this mis-selling continues, we want to see the FSA resolve these issues:
First, the scheme must command the confidence of the business community and it is far from clear that is currently the case. For example, if businesses do not feel the "independent reviewers" are "independent", it undermines the entire process. And if the process is not genuinely a speedy one, it will be of little assistance to those forced under before they receive any redress.
Secondly, the scheme should operate as far as possible to put SMEs into the position they would have been in had they not bought the mis-sold product concerned. The banks should not be able to rely on the need to protect their share price or any other reason to justify the erosion of this principle.
Thirdly, under the agreement, if misselling is found to have occurred, the bank concerned is to provide "fair and reasonable redress" to affected customers but it is not clear what this means. This needs clarification so the system for redress is open, transparent and applied in a consistent manner.
Fourthly, the scope of the scheme is limited to what are described as "non-sophisticated" business customers. A sophisticated customer is described as one with either having a turnover of more than £6.5million, a balance sheet of more than £3.26million or more than 50 employees. This is too restrictive a definition and must be broadened. As the organisation, Bully Banks, which has done excellent work on behalf of victims has pointed out, the current narrow definition would mean farmers who employ large seasonal workforces and own agricultural land with large capital values would be excluded from the remit of the scheme when they don't think of themselves as "sophisticated."
Finally, we have persisted in our calls for a moratorium to apply to payments made by those businesses who have clearly been mis-sold products. There is a real danger that as the process of seeking redress continues, ongoing charges relating to missold products could push more businesses under.
We need to see the FSA come forward with a fair solution for the wealth creators in our country who have lost out as a result of swap misselling. This is crucial not only to provide redress for the small and medium sized firms themselves, not only as a part of the process of restoring public trust in the banks, but for all of us at a time when we need to see them driving growth and spurring recovery.