When will the investors who were mis-sold interest rate swaps (IRS) be compensated for their losses? The High Street banks were paid in 2008, but why aren’t the regular investors being compensated? The banks have admitted guilt. So why the slow process?

The UK has changed its primary financial regulatory agency and made new rules. In November 2013, there are promises for letters dealing with consequential loss from interest rate swaps. Here are the details and what you discover when you “read between the lines.”

Long Slow Regulatory Process Since 2008 Credit Crunch

When an individual or bank suffers financial difficulties, it is important that it receives immediate help. The High Street banks were bailed out, but many holders of complex derivatives, like the IRS are still waiting. A key problem is that a derivative is like a bet, when the investor bets wrong, he must pay for his mistake with the original expense plus the consequential loss of added fees.

It has been five years (2008 to 2013) since the “fraudulent derivatives” were sold. It took some time to merely define what constituted a “mis-sold” derivative.

You Don’t Change a Horse In Mid-Stream

The UK Financial Services Authority (FSA), which oversaw the Credit Crunch of 2008, has been disbanded and replaced with the Financial Conduct Authority (FCA). There is a “conflict of interest” when a regulatory agency is too close to an industry it regulates. Has the FCA resolved the question of a potential banking “conflict of interest?” No. If you read the details of how the FCA is financed, you will discover that the salaries of the regulators are paid by fees charged on High Street banks.

So why the new FCA? One significant change is that in 2013, many banks are “pseudo-publicly-owned” entities after receiving their bail-outs. This gives the public more control over banks. The FCA has encouraged banks to put money in a compensation fund for victims of “mis-sold” IRS.

When You Get Into Financial Troubles, the Banks Charge You Extra Fees

In November 2013, the FCA has made progress to redress the wrongs of the mis-sold interest rate swaps. Nine banks have signed up to create a compensation pool for more than 25,000 mis-sold derivatives products. They are starting to send out letters to victims offering compensation for losses of the “original interest rate swaps.”

Is a criminal allowed to determine his sentence? No. But in the United Kingdom, the very same High Street banks who “mislead” their customers are determining what the victims will receive for compensation.

Calculating Consequential Losses

The next challenge is to calculate the “consequential losses” accruing from the “mis-sold IRS.” When an investor in a derivative suffers a loss, then he will be assessed fees, charges or be forced to add more money to the investment. When a bank determines that a swap had been mis-sold, it will suspend the swap.

The banks have stated that they will

  1. only pay compensation when the original and consequential losses are added together and
  2.  if a victim does not accept the offer, then the swap will be “unfrozen.” So why are the banks sending out a first letter only including the “original” losses? Furthermore, how can a bank that has admitted “guilt” tell investors “take-our-offer-or-we-will-unfreeze-your-mis-sold swap?”

“Something is rotten in the state of … Denmark.”

From an objective viewpoint, it seems like the banks are merely “kicking the bucket down the road.” If financial experts in the Computer Age can calculate how much High Street banks need to receive for bail-outs, why can’t they calculate how much is owed the “small-time” IRS investor?

Consumer Lawsuits

The banking delay tactics suggest that they might not have enough money to pay off all the victims. Is their own lack of capital the real problem? The slowness of the process is a suggestion that the financial sector is collapsing. If wealth investors think the derivatives market is “fraudulent,” they won’t invest.

The banks have admitted guilt. The public is very angry with banks. What jury would side with a bank over a mis-sold IRS? The threat of a class-action suit remains real.

Interest Rate Swap News

What is the FCA Sophisticated Customer Test?

In January 2013, the FCA published what it found with regard to the pilot review scheme for the mis-selling of IRHPs, or interest rate hedging products, otherwise known as swaps. In a number of ways, the results were welcomed: the company found over 90 percent of sales to “non-sophisticated” customers did not comply with regulatory requirements, such as the COBS Rules. In addition, the FCA noted that most of these sales have the chance to result in redress to the customer.

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Interest Rate Swaps : FCA Fair & Reasonable Redress

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.

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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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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.