Thousands of victims of interest rate swap mis-selling from some of Britain’s largest banking groups could start receiving compensation within weeks, as a trial of the FSA’s redress plan is expected to be run out on an initial batch of victims.

Independent auditing companies have started reviewing a series of 50 cases of interest rate swap mis-selling claims from a selection of the largest banks in the UK. These 50 cases are an initial batch of what could be thousands of total claims that could cost British banks billions of pounds in compensation.

Swap Claim Review

Although the review process is officially underway, the Financial Services Authority (FSA) has warned both financial institutions and consumers to not prematurely predict the outcome of the independent review. Allegedly some of the banks involved in rate swap mis-selling have told their customers not to expect high compensation amounts once the review has been completed.

In a letter written to the Sunday Telegraph, a spokesperson from the FSA said that they received a complaint from a customer of Barclay’s Bank, saying that the bank had warned him that he may not be receiving any compensation at all, and rather would just be replacing his current financial services product, with a less complex interest rate swap.

The FSA has warned banks to not be too hasty to predict what the reviewers will ultimately determine as fair and reasonable compensation for the victims of interest rate swap mis-selling.

Mis Sold Swap Claims

Barclay’s is one of several banks in the UK, including Lloyd’s Banking Group, Royal Bank of Scotland, HSBC and a number of smaller banks, who have agreed to send case studies to independent auditors to be reviewed after allegations surfaced of mis-selling of banking products by the financial services companies.

Financial institutions across Britain have been selling interest rate swaps, a highly complex financial product, to consumers looking for loans since 2005. When the products were initially launched, banks claimed that the consumer was protected from increasing interest rates by the swap arrangement, ensuring that they would always be able to afford their loan repayments without unexpected rises in the interest rate.

Interest rate swaps are often marketed by financial institutions as a form of fixed interest loan. The reality, however, is that this complicated product relies on the movement of interest rates, which carries significant risks to the consumer. Many interest rate swaps were sold without customers fully understanding the risks involved, and consumers have lost hundreds of thousands of pounds in the process.

As allegations of such mis-promotion grew, the FSA requested a formal review of cases from all of Britain’s major lenders. FSA officials will review the findings of the independent audit into the cases, and if the financial institutions are found to be guilty, a full compensation scheme will be rolled out to the victims. All of the lenders involved in the review have agreed to sign up for the FSA’s redress scheme, which is expected to be completed by May of next year.

The review and compensation process has not been free of criticism, however. The Federation of Small Businesses (FSB) wrote a request to Chancellor George Osborne urging the government to establish their own independent review proceedings.

According to the chairman of the FSB, John Walker, the FSA’s full redress scheme has a number of critical failings and even pressed the agency to drop the compensation scheme altogether, in favor of an independent team. Walker claims that he has consulted experts in the field and indications show that an independent compensation process will be practical, more affordable and as rapid as an FSA solution, and will encourage consumers to regain confidence in the financial services.

Julia Dunn, FSA’s head of the retail banking department, has denied claims of flaws in the agency’s compensation scheme, and reassured doubters that the FSA has already taken steps to address some of the concerns raised by small and medium enterprises and the FSB. Representatives from the FSA and the FSB will meet next week to discuss further their concerns.

Leading banks including Lloyds Banking Group and Barclays are allegedly offering pay packages of over 200 000 pounds a year to employees that will handle compensation of small business owners who were victims of interest rate swap mis-selling by the financial providers.

Banks recruiting staff to deal with Swap Claims

According to job advertisements in London’s major headhunting firms, recruits can expect salaries of 900 pounds a day to deal with the redress proceedings. As yet, Barclays and Lloyds appear to be the only banks looking to hire additional staff to deal with the repercussions of the FSA’s compensation scheme. According to a source from the financial services industry, Barclays may be looking for up to 80 additional staff members to focus on the interest rate mis-selling compensation.

In a press release, Lloyd’s stated that they are fully committed to the compensation process and want to ensure that they have appropriate staff members and resources available to manage the process efficiently.

Although the results of the initial batch of cases for review are only being released in the next few weeks, banks across the UK are already making provisions to cover the potential costs of the compensation for interest rate mis-selling. HSBC has put aside more than 120 million pounds, while Barclays have provided for close to 450 million pounds for compensation. Although Lloyds have not released a figure for their compensation budget, the bank’s chief executive Antonio Horta-Osorio said that the costs of the interest rate swap debacle will have no major effect on the bank’s finances.


Interest Rate Swaps Resource

Small Business Disillusioned with mis-sold Interest Rate Swaps

Many businesses have become disillusioned due to the compensation schemes set aside for the interest rate swap mis-selling derivatives. The Financial Services Authority has agreed to look into the cases of the mis-sold financial products of the big four banks (Barclays, Royal Bank of Scotland, Lloyds, and HSBC). There are several other banking institutions that have become involved in this Swap claims dilemma, also.

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£10m Interest Rate mis-selling complaint against Lloyds by Alan Sugar

Lord Alan Sugar has sent a formal letter of complaint to Lloyds Bank for “mis-selling” of an Interest Rate hedging product. The apparent Break free sum amounts to £10m which was attached to the interest rate hedging product Lord Sugar used on his property.

The derivative was to protect against interest rate rises on a £97m Lloyds loan. Lord Sugar is undersatood to be considering legal action if the complaint is unsuccessful

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Interest Rate SWAP Claims

Maple Leaf Financial have a specialist team of solicitors dedicated to dealing with the mis-selling of interest rate swap protection products by the banks. We are happy to review these relatively complex swap arrangements and to claim compensation for our clients where appropriate.

If you believe you have incorrectly been classified as a ‘sophisticated’ customer and have, therefore, not been eligible for interest rate swap redress. Maple Leaf Financial will review your interest rate product and we will be happy to discuss your individual concerns and requirements

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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.