Written evidence submitted by the APPG on Fair Business Banking (POH0034)
Submission to BEIS Select Committee:
The Compensation Scheme for Subpostmasters
The Historic Shortfall Scheme (HSS) has been set up by Post Office Limited (POL) and Herbert Smiths Freehills (HSF). This submission focuses on the experience that the APPG on Fair Business Banking (APPG FBB) has in the creation and implementation of compensation schemes in the context of banking misconduct.
Our experience is that schemes designed and implemented by the offending parties (or its agents) are wholly inappropriate, do not command the confidence of the public, the users of the scheme or parliament, and are used as mechanisms through which liability is controlled rather than fair redress distributed.
Even those schemes–such as the IRHP Redress Scheme implemented by the FCA–which were designed with regulatory oversight have been shown to be lacking in the basic principles of good governance, transparency and robust and consistent processes, as recently evidenced by the Swift Review.
It is the view of the APPG that redress schemes must be set up with core principles and building blocks of transparency, accountability and stakeholder engagement. These principles can and should apply to any industry, business or organisation that must set up a compensation scheme.
There has been significant work in this area in the last few years. Most notable are two reviews of failed and flawed compensation schemes: The Cranston Review and the Swift Review. Both provide valuable lessons in what not to do, and what good looks like.
Any schemes set up without the basic building blocks identified in these reviews will not command the confidence required. As the HSS is being underwritten by the taxpayer, it is critical that the scheme that is set up is beyond reproach.
With the benefit of our extensive experience, we firmly believe the redress scheme for the subpostmasters is of significant concern and has all of the hallmarks of a process designed to limit the liability of the offending party and ultimately fail those it is intended to help.
The APPG has been instrumental in pressing for the creation of most of the key compensation schemes and review processes for banking misconduct over the past decade.
● The IRHP compensation scheme (overseen by the FCA)
● The Griggs Review (to compensate victims of the HBOS Reading Fraud)
● The Cranston Review (to review the Griggs Review)
● The Foskett Panel (to implement the findings of the Cranston Review and re-do the whole of the D+C finding and calculations from the discredited Griggs Review). This is the only scheme thus far that is delivering consistent and fair outcomes.
● The Swift Review (to review the role of the FCA in the IRHP compensation scheme)
● The set up of the Business Banking Resolution Service (still under review)
● The RBS GRG compensation scheme (not yet reviewed and not a recommended model)
It has been a matter of extreme frustration and patent injustice that in all cases the design and implementation of the original redress schemes was undertaken in such a way that limited the liability of the offending party whilst also limiting the redress and options of those to whom the schemes were designed to provide redress.
During the course of the last ten years, there are several design flaws that are repeated on a regular basis. Much of this could have been avoided with fair participation, representation and a requirement for agreement of the victims in the ToRs. Our core concerns with previous schemes are:
● Terms of Reference set by the offending party and with limited or no involvement of victims or its representatives
● Parties engaged to operate scheme, determine cases or both, selected by the perpetrators
● Absence of conflict of interest checks or right of victims to challenge appointments
● Definition of fair and reasonable not clearly articulated
● Applying strict legal principles and processes to a fair and reasonable scheme
● Absence of a requirement for full or balanced evidential disclosure
● Non-disclosure of documentation
● Burden of Proof sits with the complainant, whilst information sits with the respondent
● Non-disclosure of decision making methodology including calculations of redress
Chapter 7 onwards of the Cranston Review provides an excellent assessment of the failures of the now discredited Griggs Review, and provides a detailed exemplar of what not to do. Any assessment of the merits of the HSS should certainly use this critique as a benchmark.
It is worth noting that the discredited Griggs Review was designed by Lloyds with the support and involvement of Herbert Smiths Freehills, the same firm that has designed the current subpostmasters scheme.
The scheme as set up has all of the hallmarks of the schemes that we have seen fail claimants, resulting in further anxiety and loss for those affected by injustice. It is strikingly similar to the HBOS Reading Griggs Review, which has been discredited.
Particular areas of concern:
● The claimants had to contractually engage with the scheme (and waive further rights to action once an offer–no matter how derisory it may be–is received) prior to having any knowledge of the ToR’s, the scope or the methodology. Even by the low standards that we have seen in previous schemes, the APPG finds this particularly shocking
● There was no engagement with claimants for the set up of the methodology of the scheme and the ToR. The only engagement appears to have been with claimants’ solicitors on three high level principles. This is completely inadequate.
● The scheme excludes a great deal of potential claimants, including those most severely affected by false criminal prosecutions
● The burden of proof for consequential losses lies with the claimants without the benefit of access to information and expertise required or sufficient to make a case (Cranston writes about this in detail). The design of the consequential loss element will ensure that very little is paid out in consequential losses and will be a severe detriment to the claimants.
● Claimants do not have access to funding for independent legal or financial advice
● The process by which POL/HSF make an initial recommendation that goes to a panel for review is identical to the discredited HBOS Reading Griggs process, in which Lloyds/HSF made a initial recommendation that went to the Griggs panel. This does not work and firmly puts the fox in charge of the hen house.
Reviews undertaken by Cranston and Swift both provide excellent guidance on what good can look like.
● Is co-created by, and enjoys the support of, claimants and the respondent (the perpetrator, or government in its stead) alike
● Delivers full redress to as many claimants as possible, as close to immediately as possible
● Delivers fair redress to the balance of claimants as quickly as possible thereafter
● Protects the respondent from having to pay unjustified or egregiously inflated claims
● Is cost-free for the claimants and as cost-effective as possible for the respondent
● Achieves equality of arms in terms of access to legal and financial expertise and access to information
● Is binding on neither party (to encourage participation and protect against injustice), but contains incentives to accept the findings
Experience of flawed redress schemes relating to bank misconduct toward SMEs, combined with the application of the basic principles of natural justice and fairness, provide us with a clear vision of what good can look like.
Fortuitously, the number of claimants in the sub-postmasters’ scandal is likely to be materially lower than those in the cases we have studied and the Government owns the single respondent and is therefore under political pressure to behave as a model litigant (or, more accurately, model respondent), so a simplified process may be appropriate.
We have attached, for your reference, what good can look like as a proposed scheme.
APPG Report on dispute resolution and redress:
Fair Business Banking for All (section 3.3 and introduction to 4)
http://cranstonreview.com/Content/Documents/The%20Cranston%20Review_v2.pdf (chapter 7 onwards)
*Also attached is the APPG submission to the Cranston Review and the Laidlaw Report on the Grigg’s Review
Independent Review of Interest Rate Hedging Products – Final Report (A very long document, but worth looking at the comments made on implementation of the scheme, which led to unequal outcomes)
https://www.appgbanking.org.uk/wp-content/uploads/2020/09/APPG-on-Fair-Business-Banking- Review-of-IRHP-Review.pdf (a more concise account of the issues that faced claimants from page 15)
● Kevin Hollinrake MP, Chair of the APPG
● Heather Buchanan, Executive Director of Policy and Strategy
An All Party Parliamentary Group (APPG) is an interest group that occupies a strategic and effective position within Parliament. It is cross-party, with a minimum number of parliamentarians from the Government and the official opposition, and cross-house, made up of both peers and MPs. The APPG on Fair Business Banking is a platform through which businesses, professionals and trade bodies can discuss issues regarding commercial banking and its role in the life cycle of a business, and through which parliamentarians can access information on banking, finance and related issues, including business rescue and insolvency, on behalf of constituents. As a cross-party group, the APPG is an effective vehicle to effect meaningful change via the Parliamentary system. The Group’s status is that of an APPG is bound by the rules set out by The Office of the Parliamentary Commissioner for Standards. It does not have charitable status, or official status in the House, nor is it funded by Parliament. It relies wholly on the participation and contribution of parliamentarians, industry members and stakeholders committed to creating a strong platform for business in the UK to thrive. The APPG is coordinated and administered via the APPG on Fair Business Banking Secretariat.
The APPG on Fair Business Banking processes personal data. Further information on the processing of personal data for constituents is found on our Data Protection Privacy Notice for Constituents and for members and affiliates of the APPG on our Data Protection Privacy Notice. We hold your information securely on Parliament’s digital network and keep your information for one year after the current Parliament ends (maximum of 5 years). We will not share your personal data with a third party unless we have your express consent. You have the right to access your data, withdraw consent for the APPG to hold your data, to have your data corrected or to restrict the use of your data at any time. Please contact k in order to do so. The data controller is the Chair of the APPG.