The Financial Services Authority (FSA) is on course to extend the scheme to compensate businesses that were mis-sold swap rates. This deal with the FSA and Britains four largest Banks, Barclays, HSBC, LLoyds and RBS to now include Yorkshire and Clydesdale Bank in the deal set up to compensate mis-sold businesses in the interest rate swap fiasco.

Mis-Sold Swap Compensation Claims

The deal arranged between the FSA and the Banks is to compensate businesses that were mis-sold swap rate policies / loans. This deal looks set to see Banks compensating businesses in the hundreds of millions.

The FSA will announce later in the week how the process will work. It looks likely that banks will have to agree to independant assessors appointed to the individual Banks to oversee the process. They are also expected to extend the scope of the original findings, allowing some businesses that would not have been able to launch a swap compensation claim, to not fall within the swap review process.

This move was after the FSA met with victims of swap mis-selling schemes and how the Banks did not fulfil their obligation to help these businesses.

It remains unclear how some of the swap compensation claims will be managed, as a large portion of the companies / businesses that actually were mis-sold swap rates have ceased trading, some as a direct result of the unfair terms associated with the product. Independant assessors should help determine how much compensation to pay. For example, Lloyd’s is using an independent assessor to look at each case and determine how much they need to be compensated. Heads of the bank have made assurances to customers to try to calm the storm a bit. Brian Robertson, an executive at HSBC and Chris Sullivan of RBS said that they would do everything they could to avoid for closing on these businesses that were affected, except in extreme circumstances.

At first glance, it appears that the banks will do everything that they can to make sure that the businesses negatively affected by this scandal will not be hurt any further. While it may not fully make up for the mistake, it will help.

Unlike PPI claims that were mis-sold in there millions, the FSA seems to think that there were an estimated 28,000 interest rate swap policies sold, but the amounts that these total may be higher then PPI payouts.

Typical Mis-Sold Swap Complaints :

The business did not understand the actual product that was being sold to them. In most cases the business did not understand that this was a seperate hedging product seperate from the loan and did not appreciate that the lending margin was an addittional extra to the hedge rate.

The Business was not explained what would happen if the interest rates fell. Charts used by banks in the sales process did not show interest rates below 3.5%, when we now have interest rates at 0.5%. This created the ‘impression’ that interest rates could never fall below this level.

Businesses were not aware of the size of the break cost. If a hedging product is broken before the term of the financial product then there are substantial break costs to be payed. This goes back to the point that businesses were not fully explained that this was in fact a seperate hedging product and part of the derivatives market.

The Business was not made aware that the Bank could terminate the hedging product. Hedging is designed to favor the Bank because if the swap begins to work against the Bank in the case that the interest rate is rising, a Bank can simply terminate the swap.

 

The Banks sold swaps as a win win product.

If interest rates fell, the customer would pay and if the interest rate went up, a Bank could terminate the swap.


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.

Read More


Interest Rate SWAP victims

Interest rate swaps is a type of insurance policy offered to firms by banks if the interest rates fluctuated to their disadvantage. As firms took loans between the year 2001 and 2008, most of the financial institutions offering loan services had in place this insurance cover. The only loop hole with swaps was that it didn’t explicitly define the extent to which the cover was to go on the occurrence of the event. The policy used to avoid including extreme events in the contracts in order to sell more policies as well as maintain their customers.

Read More


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.

Read More


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


The following two tabs change content below.

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.