The regulatory failings of bank interest rate swaps have left thousands upon thousands of disgruntled customers looking for redress. Fair and reasonable redress, including consequential losses, by the banks and the FCA helps put customers in the same position they would have been in if the regulatory failings had not occurred.

The exact definition of fair and reasonable redress is malleable as it varies from case to case. In each case, the testimony of the customer and the evidence is reviewed by an independent reviewer to determine the appropriate redress. Therefore, when discussing fair and reasonable redress, it is important to have an understanding of basic redress and consequential losses.

FCA Interest Rate Swaps, fair & reasonable redress

Basic Redress

Basic redress takes into consideration the difference between the payments made on an interest rate hedging product and the payments that a customer would have made if the regulatory requirements had not been breached. Although each case is different, there are three possible outcomes for a basic redress:

1. The customers who would not have bought an IRHP will have their IHRP cancelled and they will receive a full refund on any payments they made on their IRHP.

2. Customers who would have chosen the IRHP and those who have not suffered any losses will not receive a redress.

3. The customers who would have chosen a different product that offered protection against interest rate fluctuations will only receive redress based solely upon the difference between payments they made on the product they did not choose and the payments they would have made on a different product of their choice.

Typical Fair and Reasonable Redress Offers

The goal of every review is to place customers in the position they would have originally been in had there not been a breach of regulatory requirements. The FCA expects banks to explain to their customers how their judgments have been reached, including any facts that they relied upon whilst making their judgments. It is up to each individual reviewer to verify any calculations used by the banks to determine their redress offers.

In most cases, customers will be offered 8 percent a year in simple interest, which covers the cost of being deprived the expected interest rate return on their investments. However, fair and reasonable redress may also include:

• A cost that a customer has incurred from money that was borrowed in order to purchase a product. In these cases, evidence must be available that supports these claims.

• Any interest that has been lost as a result of a customer having less money in their bank account.

If applicable, customers can receive redress for consequential loss in addition to interest.

Consequential Loss

Consequential loss involves any loss of profits and additional costs that have been incurred as a result of IRHP products that breached regulatory requirements. The following examples of consequential loss are frequently reviewed by the FCA:

• Loss of profits – Customers who submit claims for loss of profits must provide evidence that the funds in question would have been used to generate a profit through an alternative investment. Any money that would have been invested in an investment would not be able to earn bank interest during the same time period, which keeps customers from being able to double recover their funds. If a customer is found to have lost less than 8 percent interest, then a loss of profits claim can result in a customer receiving a payment that is less than 8 percent.

• Bank charges – Any fees and charges that were suffered as a result of a mis-sold IRHP investment may be recovered.

• Legal expenses – Certain legal fees, such as seeking legal advice about restructuring the finances of a business to take IRHP payments into account, that have been incurred as a result of dealing with the unfortunate consequences of a mis-sold IRHP may also be recovered. However, legal fees incurred as a result of trying to recover compensation from a mis-sold investment are more than likely unable to be claimed.

• Taxes – This is applicable to customers who must pay a tax on their redress that is greater than the taxes they would have paid on a properly sold investment. The specific tax treatment of a redress depends upon a customer’s financial and tax position as well as the circumstances of the case. Every customer should contact HM Revenue and Customs to confirm their tax position.

Every customer of a mis-sold IRHP investment should keep in mind that loss of profits claims take longer to review. For each consequential loss claim, the customer must provide evidence and demonstrate that all of the legal tests have been met.

In order to stop the ongoing financial bleeding and begin rebuilding their reputations, banks may want to consider offering customers a final settlement that includes basic redress and any consequential losses. By offering a complete and final settlement, all parties will be able to put the mis-sold investment fiasco behind them and finally move on.


Interest Rate Swap : News

Banks face property developers hidden claims upto £10bn

According to research published by DTZ a global property service company, Banks could face an extra hidden cost to property developers from interest rate swaps used by developers on commercial property portfolios around the country.

Thousands of property developers could be entitled to better lending terms and compensation over mis sold interest rate swap products between £5bn and £10bn. An estimated 1 in 5 commercial property developers could be eligible under FCA redress for mis selling of interest rate swap products.

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Mis-sold interest rate swap flowchart

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.

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Interest Rate Swaps

Essentially, two parties exchange interest rate cash flows, and the agreed upon contracts will specify the details of these exchange transactions. Hedging and speculating can be made more palatable with an additional product such as the IRS. The IRS will give more of a safeguard against a volatile market. Investing in interest rate behaviors often will soften a loss or add to a gain by either party. This type of product is similar to an insurance or assurance of a lesser kind of loss.

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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.