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.

Original article:

Interest Rate Swap Claims News

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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.