The Financial Ombudsman Service has provisionally upheld two decisions relating to advice given to investors from banks on interest rate swap products, stating that the investments exposed them to “significant potential costs”.

While Fos told FTAdviser that the decisions should not be seen as setting a precedent, the publication will be seen as significant in the context of the recent regulatory crackdown on the sector, which has seen a review of sales launched at several major banks.

Interest Rate Swap Mis selling

The Financial Services Authority announced in June that it has reached agreement with banking groups Barclays, HSBC, Lloyds and Royal Bank of Scotland to provide appropriate redress after identifying mis-selling of interest rate hedging products to small and medium sized businesses.

Barclays later confirmed it has set aside £450m to cover redress, while Royal Bank of Scotland said it had set aside only around £50m.

Both Fos decisions relate to sales that took place in 2007 to what the Fos described as ‘non-sophisticated’ investors. The disputes revolve around whether the banks gave the investors advice and, whether they took adequate steps to ensure any advice was suitable, Fos ombudsman Tony Boorman said.

The first dispute involves the sale of a £2m, 15-year term “multi-callable interest rate swap” from an unnamed bank to a family business.

Mr Boorman has provisionally concluded that the bank recommended a swap to the family that was not suitable, stating in particular that the bank could break the arrangement at any time after the first two years without penalty. In contrast, break costs for the family were recently calculated at around a quarter of the value of the loan, he said.

He found that the bank failed to adequately highlight or explain the potential cancellation charges associated with this swap.

The second dispute is about the sale an interest rate hedging product called a “collar”, which was sold on a 20-year term.

Mr Boorman provisionally concluded that the bank’s recommendation was not suitable as the inclusion of a “floor” in an arrangement set to last 20 years exposed the business to “significant potential costs” if it wished to break from the agreement because of the way these were calculated.

He again said the potential scale of those break costs were not adequately highlighted and explained.

In both decisions Mr Boorman stated that there will be further discussions over the scale of any award once the parties have had an “opportunity to discuss the matter”.

A Fos spokesperson told FTAdviser: “By no means does these two cases set a precedent. Interest rate hedging products are by very nature a very complex and can involve a number of different scenarios. We will look at the merits of each case.”

Barclays Sets aside £ 450 mill for Mis sold Interest Rate Swap Claims

The Financial Services Authority has commenced an investigation involving Barclays and four of its current and former senior employees, the bank has confirmed in interim results announced today (27 July).

Barclays said in its result that the regulator is investigating the sufficiency of disclosure in relation to fees payable under certain commercial agreements and whether these may have related to Barclays capital raisings in June and November 2008.

In a statement, Barclays said: “Barclays considers that it satisfied its disclosure obligations and confirms that it will cooperate fully with the FSA’s investigation.”

The results revealed that Barclays had made pre-tax profits of £759m, down 71 per cent from last year’s £2.6bn profit.

This figure excluded the £300m set aside for payment protection insurance as well as a £450m provision for interest-rate hedging products’ redress.

In June the FSA announced that it has found “serious failings” in the sale of interest rate hedging products to some SMEs and that Barclays, HSBC, Lloyds and Royal Bank of Scotland had agreed to join the scheme and provide appropriate redress to clients.

The regulator said that during the period 2001 to date, banks sold around 28,000 interest rate protection products to customers, many of which were small and medium-sized businesses.

Interest Rate Swap News

Dealing with Consequential Loss from Interest Rate Swaps

When will the investors who were mis-sold interest rate swaps (IRS) be compensated for their losses? The High Street banks were paid in 2008, but why aren’t the regular investors being compensated? The banks have admitted guilt. So why the slow process?

The UK has changed its primary financial regulatory agency and made new rules. In November 2013, there are promises for letters dealing with consequential loss from interest rate swaps. Here are the details and what you discover when you “read between the lines.”

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What is the FCA Sophisticated Customer Test?

In January 2013, the FCA published what it found with regard to the pilot review scheme for the mis-selling of IRHPs, or interest rate hedging products, otherwise known as swaps. In a number of ways, the results were welcomed: the company found over 90 percent of sales to “non-sophisticated” customers did not comply with regulatory requirements, such as the COBS Rules. In addition, the FCA noted that most of these sales have the chance to result in redress to the customer.

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FCA: Interest Rate SWAP redress set to Increase

One of the biggest scandals to affect the financial industry in recent decades has been the rise to prominence, and subsequent crash, or interest rate swaps and related securities. In a period of stock marketing trading and banking practises that were generally less regulated than in earlier eras, these products played a central role in boosting consumer fortunes and building up economies both in the United Kingdom and around the world. Their subsequent fall from grace led to one of the biggest financial crises of the last half-century.

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Interest Rate SWAP Claims

Maple Leaf Financial have a specialist team of solicitors dedicated to dealing with the mis-selling of interest rate swap protection products by the banks. We are happy to review these relatively complex swap arrangements and to claim compensation for our clients where appropriate.

If you believe you have incorrectly been classified as a ‘sophisticated’ customer and have, therefore, not been eligible for interest rate swap redress. Maple Leaf Financial will review your interest rate product and we will be happy to discuss your individual concerns and requirements

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Tim Capper reports on Financial Mis-Selling for Maple Leaf Financial. Our aim is to ensure you get honest advice and proper guidance to ensure a suitable recommendation can be made to pursue a financial claim

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Tim Capper

Bringing you financial news and information in plain english for Maple Leaf Financial. My aim is to help readers understand these often complex financial instruments.