The FSA has conducted a fresh review into Banks handling of mis-sold Interest rate swaps to small businesses. We can expect the review / verdict as early as next week.
The review into the selling of Interest rate swaps could see Banks contatcing all customers whom they sold these Swaps to, seeing massive business compensation claims.
Banks await FSA’s decision on rate swap compensation
Britain’s biggest banks are facing fresh scrutiny as the City watchdog publishes its first update into the mis-selling of interest rate swaps to small businesses. The Financial Service Authority is expected to pass down its verdict on whether banks have been handling complaints properly as early as next week.
If it is satisfied with their approach to the claims, it will order a full review of up to 40,000 cases, ranging from fish and chip shops to hair salons.
Banks will then be forced to contact small businesses which bought an interest rate swap since 2001, potentially triggering hundreds of millions of pounds in compensation. But if the FSA still has concerns about the treatment of claims, it could force the banks to go back to drawing board, sparking further delays for tens of thousands of small firms
A key sticking point is what type of firms should be eligible to claim. The FSA wants banks to focus on sales to ‘non sophisticated’ firms which should not have been sold a complicated product. But banks are concerned the definition of this term is too broad because it is based on a company’s turnover and number of staff. Firms with fewer than 50 employees, less than about £3million in assets and £6.3million in annual turnover are considered ‘non sophisticated’.
Lenders fear this could open the floodgates to claims from subsidiaries of listed companies and ‘special purpose vehicles’, which are set up by firms purely to process certain transactions but which often have low turnovers and few staff.
One bank insider said: ‘This could lead to delays for fish and chip owners because we could end up focusing on the wrong cases. It would be in no one’s interests.’
Rate swaps were sold alongside loans to protect firms against rises in interest rates. But when rates unexpectedly fell to record lows, many were left with crippling ‘breakage fees’ if they wanted to move to another deal. Eleven banks have been ordered to review a sample of complaints. The biggest four banks are expected to need to at least double the combined £720million compensation they have set aside so far.
But Abhishek Sachdev, managing director of Vedanta Hedging, said small firms should not expect a huge jackpot. ‘They are likely to be disappointed,’ he said.
Interest Rate Swap Claims News
Interest Rate Swaps: Barclays Bank, Fair and Reasonable Redress
Certain interest rate hedging products (IRHPs) have come under question by current banking customers and by several banking agencies within the U.K. These banking products are structured collar financial products that are frequently used to hedge against future interest rate expenses. These complex structured collars were sold to numerous loan customers during the period of time before the great international recession. This financial downturn across the international financial markets created unusual interest rate returns for many of the structured collars sold to Barclays Bank customers.
Preparing Businesses for an Interest Rate Swap Claim
The interest rate swap mis-selling fiasco has garnered a lot of attention during the past year. Over 12 months after the first cases went up for review, the claimants are just now receiving the compensation they deserve. Although it may seem like businesses around the country are now experiencing financial windfalls, there is much work that needs to be done before anyone can expect to receive compensation from their interest rate swap mis-selling claims. It has become quite clear that the process is much more involved than a PP mark-II.
Interest Rate Swaps: Natwest, Fair & Reasonable Redress
Natwest Bank in London has begun a direct redress program for those small businesses affected by several interest rate swap products. These interest rate swap products or structured collars were sold to small businesses as a hedge against any risk associated with the interest rate markets. The small businesses or unsophisticated businesses were allowed to purchase these products. The 2008 financial crisis caused many of these hedging products to be of little value against interest rate changes. Small businesses were left with a financial bill that was significantly burdensome.
FCA Interest Rate Swap Flow Chart
Derivatives may be one of the most complicated financial investments on the market. The Financial Conduct Authority (FCA) has created a chart to help consumers, barristers and bureaucrats understand whether a potentially mis-sold Interest Rate swap Hedging Product (IRHP) can be reviewed.
The Financial Conduct Authority (FCA) Interest Rate Flow Chart uses a flow diagram with “Yes/No” questions to show whether a debtor qualifies for regulatory review.
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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