In late October, a clearly flustered High Court justice scolded a Barclays Bank barrister in the court and ordered the bank to show the names of the employees involved in the alleged Libor rigging scandal. So began the blockbuster trial that will lay out the scam used by some of London’s biggest banks to rip off customers involving Interest Rate Swaps.

FSA & Mis Sold Swap Claims

The Financial Services Authority (FSA), which oversees financial services in the UK, announced recently that more than 40,000 small businesses may have been victimized by interest rate swaps. One cabinet minister has expressed concerns that the scandal could devastate UK banks. The cost to compensate victims could easily swamp the £10bn already paid out to investors of payment protection insurance mis-selling.

Guardian Care Homes, a home care business, is the first of what could be a flood of businesses that will bring their complaints against the banks to the courts. Legal analysts are closely watching this case which could become both a blueprint and a foreboding omen of what’s in store for specific banks involved in the Libor scandal. Should Guardian win a favorable ruling, that could break the dam for other companies to join Guardian for billions of pounds in claims against Britain’s high-street banks.

To date, the four largest lenders in Britain, along with seven other small lenders, have been socked with claims of swap mis-selling. The FSA has set up a contrition fund that’s designed to compensate businesses who were victims of the Libor scheme. This is designed to hopefully staunch legal action against the banks.

Barclays has already poured £450m into the FSA kitty to pay compensation. The bank also hired more than 500 people to help process claims. HSBC has kicked in about £100m. RBS has pledged £50m. Derivative analysts, though, are predicting that the compensation cost could top £20bn.

So far, businesses that were victimized by the Libor scam are criticizing the FSA scheme and characterizing it as foot-dragging by the banks. They are concerned that the FSA scheme could drag out the compensation payments for months, and during that time, some companies could go out of business due to lack of operating funds. This is one of the primary reasons why businesses are closely watching the Guardian case in the High Court.

In the Guardian case, Barclays stands accused of manipulating the key lending rate known as Libor. In late October, Judge Julian Flaux ruled that Guardian presented sufficient argument to sue Barclays for alleged financial product mis-selling.

Guardian claimed that Barclays sold the company two interest-rate swaps without revealing that the underlying rate could be blown up by manipulation. This swap is known as a hedge, and it’s designed to limit loses from sudden movements in the loan costs. Guardian has claimed that it lost more than £12m in the Barclays’ swap scheme against £70m in loans. The company cares for more than 1,000 elderly patients and others in 27 homes.

Judge Flaux ruled at the preliminary hearing that the Guardian documents showed “no doubt whatsoever” that Guardian’s claims passed the “sufficient evidence” barrier. Flaux also accused Barclays of trying to hide the true scope of the Libor mess. He then proceeded to blast Barclays’ objections to his ruling as “wholly without merit.”

Over the eight-hour hearing, Flaux continually swatted down objections from Barclays and finally demanded that Barclays name the names of the people behind the Libor rigging. People will be interested in those named because what they said in the past could be damning to Barclays’ defense. When those whom the court demanded be named do appear, court watchers will hear this: “Nice Libor. Our six-month fixing moved the entire fixing. Hahahaha.”

The Libor manipulation caught the public view when American and British regulators fined Barclays £290m for attempting to manipulate Libor and interbank rates from 2005 to 2009.

This Libor scandal is important because it affects how much ordinary citizens pay in interest rates for loans on their homes, vehicles and even computer systems or TVs. It also affects how much banks pay on savings accounts. According to Libor rules, interest rates must be set according to real market trades that happen day-to-day. Libor is used to establish borrowing costs on mortgages, loans and derivatives. These three together have a combined value of £288bn.

The British Bankers’ Association has come under heavy fire from FSA for how it ran Libor. An editorial in the Telegraph this past summer accused the bankers of losing both their moral compass and their common sense. The Chancellor of the Exchequer, George Osborne, has also taken blunt criticism for not catching the Libor rigging.

It’s expected that the Guardian civil trial will begin in late 2013. Should Guardian win its case, that will open the flood gates for thousands of businesses to sue the accused banks.

Interest Rate SWAP News

FCA May Fine Banks Involved With Interest Rate Swap Mis-Selling

Banks who sold complex insurance products could possibly be fined by the Financial Conduct Authority. The deals were intended to protect the borrowers from rising interest rates. However, many businesses saw their payments increase drastically with the interest rates at a historic low.

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FCA 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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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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Interest Rate SWAP Claims UK

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.