By Huw Jones
LONDON (Reuters) - Britain's financial regulator has rejected criticism of how small firms are compensated for mis-sold interest rate hedging products, saying it was now up to the courts to rule on disagreements over payouts.
The products were meant to protect smaller companies against rising interest rates, but when rates fell to very low levels after the financial crisis, companies had to pay extra charges, typically running into tens of thousands of pounds.
The Financial Conduct Authority (FCA) set up a scheme that relies on banks using accounting firm KPMG to provide independent assessors to decide who was eligible for compensation for 30,000 products sold by nine banks.
FCA Chief Executive Martin Wheatley said that over the past two years 14,000 customers had received cash redress totalling nearly 2 billion pounds ($3.1 billion) from a scheme that has worked as expected.
The watchdog faced hostile questioning from members of the public attending its annual meeting on Wednesday.
"Something has gone badly wrong," the head of a small firm said of the scheme.
Another official from a small company said her independent reviewer turned up 25 minutes late, wearing jeans and a T-shirt with hair that needed a wash.
"I feel that I have been failed by the FCA," she said.
Jeremy Roe, chairman of Bully-Banks, which has been lobbying for better compensation, said a member of the campaign had "evidence of a fraudulent act" in selling rate swaps but the FCA had just "washed their hands of it".
"I tell you there are several hundred bank personnel who will face prosecution as a result of their activities," Roe said.
He asked how many banks or their sales staff had been fined for mis-selling interest rate products, to which Wheatley said there had been no penalties or suspension of sales staff.
There were now a number of cases in front of the court against the FCA or the banks that sold the products, Wheatley said.
"The court, therefore, is the appropriate place to determine whether your view or my view is the correct one," he told Rowe.
Wheatley later told reporters the FCA had not ruled out taking enforcement action at some point.
The High Court in April gave permission for a judicial review of the compensation scheme set up by the FCA, which could lead to an overhaul and possibly significantly higher bills for banks that sold the products.
($1 = 0.6398 pounds)