As the Interest rate swap scandle unfolded in the mainstream media, fact and figures relating to interest rate swaps have become distorted.
The Financial Service Authority (FSA) has published a detailed timeline relating to interest rate swaps and hedging products.
MapleFinancial Interest Rate Swap Claims Service
We have a specialist team of solicitors dedicated to dealing with the mis-selling of interest rate protection products by the banks. We are very happy to review these relatively complex arrangements and to claim compensation for our clients where appropriate. Please do not hesitate to call and we will be happy to discuss your individual concerns and requirements.
FSA Information on Interest Rate Hedging Products
A number of products to reduce risk to interest rate fluctuations have been sold to small and medium sized businesses (SMEs). They vary in value and complexity. They have typically been sold to customers who have a business loan with their bank. Here we update on our work between June and September 2012.
In June 2012, we announced the findings of our review into the types of products that were sold by the four largest banks, Barclays, HSBC, Lloyds and RBS, and the way in which they were sold to businesses.
We found a number of cases of bad practice, including possible mis-selling, meaning that customers may be entitled to redress. We are in the process of writing to those who have already complained to us. Here we explain what it means if you or your business bought one of these products.
3 September 2012 update: What progress has been made?
A number of the banks have appointed their independent reviewers, which we have approved. We are now reviewing the nominations from the remaining banks.
We have conducted a robust approval process to ensure the reviewers have the necessary skills, expertise and independence to understand both the complex aspects of interest rate hedging products and the specific needs of SMEs. Our approval process also scrutinised any potential conflicts of interest to ensure that the reviewers are truly independent of the bank and its customers.
Where we have identified the potential for a conflict of interest between individual customers and the independent reviewer appointed by the bank (or a perception that there could be a conflict), we have required the banks to appoint a second independent reviewer to review those cases.
We want to ensure all customers in scope of the agreement with all the banks are treated fairly. Therefore, we have required the banks to develop a methodology explaining how they propose to conduct the redress and review of past business. This includes a pilot exercise with a number of customers to assess each bank’s approach and ensure that it is delivering the right outcomes for customers. We will use the pilot exercise to review the banks’ proposals and will feed back our views, requiring changes where necessary.
The banks will not be able to go ahead with the formal review phase until we are satisfied with their methodology for the redress and review. We recognise that this initial work will mean the exercise will take longer. Getting the overall methodology for the independent reviewer right is crucial to ensuring the banks have a robust process in place to achieve the right outcomes for their customers.
What are the next steps?
We remain clear with the banks that their review should be focused on getting redress, where appropriate, to customers as swiftly as possible. We understand that the firms have either written, or will shortly be writing to, all customers who were sold interest rate hedging products, except for caps, explaining that they will receive further communication soon, explaining the next steps for their case.
We have emphasised the need for clear communication to customers, and we will continue to do so throughout the review.
23 July 2012 update
We announced that Allied Irish Bank (UK), Bank of Ireland, Clydesdale and Yorkshire banks (part of the National Australia Group (Europe)), Co-operative Bank, Northern Bank and Santander UK will all be reviewing their sales of interest rate hedging products SMEs. We have not examined the other banks’ sales of interest rate hedging products. However, the agreement means that their customers who bought these products will be treated consistently.
Additionally, we have now agreed with Barclays, HSBC, Lloyds and RBS the terms for their independent reviewers. Each customer will be given the right to have an independent reviewer present during any meetings or calls with the bank. We expect these banks now go ahead with their reviews.
About interest rate hedging products
Interest rate hedging products can protect against the risk of interest rate movements and be appropriate when properly sold to businesses, in the right circumstances.
If you bought an interest rate hedging product, you are likely to have been sold one of the following:
swaps – which enables the customer to ‘fix’ their interest rate
caps – places a cap on any interest rate rise
collars – enables the customer to cap interest rate rises by limiting rate fluctuations to within a simple range
structured collars – enables the customer to cap interest rate rises by limiting rate fluctuations to within a range (with a lower ceiling than a simple collar) but involves more complex arrangements if base rate falls below floor limit.
Some of the more complex products, particularly structured collars, speculate on interest rates and can result in customers paying more if the interest base rate falls below an agreed level. It, therefore, requires a finely balanced judgment on the part of the customer.
FSA’s review of interest rate hedging products
We reviewed the types of products that have been sold by the four largest banks and the ways in which they were sold to SMEs.
We found that when properly sold, in the right circumstances to the right customers, these products can protect customers against the risk of interest rate changes. However, when sold to ‘non-sophisticated’ customers, likely to be smaller business which wouldn’t necessarily have specific expertise and understanding in this area, some products may not have been appropriate for their needs.
In these cases, we found that the banks did not follow our rules in a number of areas, including how a number of products were sold, in particular the sales of structured collars.
As a result we have agreed the following redress and action with Barclays, HSBC, Lloyds and RBS.
23 July 2012 update
Allied Irish Bank (UK), Bank of Ireland, Clydesdale and Yorkshire banks (part of the National Australia Group (Europe)), Co-operative Bank, Northern Bank and Santander UK will now also be reviewing their sales.
What this means if you bought a structured collar
You will be entitled to redress if you bought a structured collar product and your bank believes that you may not have understood fully what you were buying. The bank will be writing to you explaining this, and you may need to respond with further information about your case. This applies to customers who bought the product after 1 December 2001.
What this means if you bought other interest rate hedging products (except caps)
Your bank will be writing to you. If it believes that you may not have understood fully what you were buying, the bank will ask whether you would like your case to be reviewed. Along with an independent review, it will then decide whether you are owed redress.
What this means if you bought an interest rate cap
Customers who bought caps have not automatically been included in this review. However, you can still complain to your bank if you are concerned about your product.
If you are not happy with how your case has been reviewed
If you are not satisfied with the outcome of your case or the level of redress you received, you can contact the Financial Ombudsman Service. It will independently review all eligible cases.
If you believe you have incorrectly been classified as a ‘sophisticated’ customer and have, therefore, not been eligible for redress, you can complain directly to your bank. If you are then not happy with your bank’s response you can subsequently contact the Ombudsman.
We have agreed that Barclays, HSBC, Lloyds and RBS will stop marketing structured collars to customers.
If you are a customer with another firm
We have begun contacting firms that sold interest rate protection products but were not part of our review. We will be providing further updates when available.
If you would like clarification regarding this, please call our helpline on 0845 606 1234 or firstname.lastname@example.org.
On 23 April 2012, we wrote to Andrew Tyrie MP, Chairman of Treasury Select Committee detailing our work to assess the scale and severity of any potential issues in this area.
Interest Rate Swap News
Interest Rate SWAP Scandal Exposed
BBC Panaroma has recently learned about a costly swap scandal. Banks who mis-sold these Interest Rate Swap products could be fined by a regulator. These complex loan products were designed to give borrowers more security by protecting them against rising interest rates. However, since the interest rates are at all-time low, many businesses have noticed that their payments have increased drastically.
FCA May Fine Banks Involved With Interest Rate Swap Mis-Selling
Banks who sold complex insurance products could possibly be fined by the Financial Conduct Authority. The deals were intended to protect the borrowers from rising interest rates. However, many businesses saw their payments increase drastically with the interest rates at a historic low.
Only 22 Businesses Compensated over Interest Rates Swaps
Banks are slowly but surely compensating small firms that have been mis-sold interest rate swap products. Firms have been waiting six months to get compensated. The Financial Conduct Authority, which is also known as the FCA, has stated that the progress has been much slower than they had anticipated. In September, only 22 got redress. There have been over 30,000 cases reviewed.
Interest Rate Swap mis selling, the true Extent of the Problem
The scandal of interst rate swap mis-selling in the United Kingdom has gained significant press over the last few years, especially since the Financial Services Authority indicated it would begin a review of the matter to determine responsibility and the extent of damage caused by the practice. In March 2013 the result were released, vindicating many small businesses country-wide who believed they had been duped and taken advantage of by their lenders.
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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