The Financial Conduct Authority (FCA) was formed nine months ago as a successor to the Financial Service Authority (FSA), which regulated the British financial services industry during the twelve years of its existence. It is not a government body and therefore gets its revenue, not from taxpayer money, but from dues collected from businesses that work in financial services. Nonetheless it plays a large role in regulating the activities of such businesses. Structurally, the FCA is a type of corporation known in British company law as a private company limited by guarantee. This means that its members serve as guarantors and agree to contribute a certain amount of money in case the company “winds up.”

Interest Rate SWAP Redress needs Additional Powers

Parliament calling for additional powers

Less than a year after the establishment of the FCA, Parliament is demanding that the organisation be given the power to create a “redress programme” for those who mistakenly bought embedded interest rate swaps. These people rightly feel like the victims of fraud: They were told that they were taking out loans from their banks when in fact they were buying financial products that were more complex than anything with which they were familiar. Already about £2 million in redress have been paid out over a period of two months, but they cover only those swaps that had been sold as independent products; it remains to take care of those that were embedded in business loans.

Liberal Democrat John Thurso, a member of the Treasury select committee, sees no reason why there should not be a similar programme in place to satisfy the demands of the latter group, despite an FCA spokesman having stated that embedded swaps are “an integral part of the loan” and are not subject to commercial regulations. Thurso has thus tabled an early day motion to give those who were affected by embedded swap misselling, access to redress. So far eighteen MPs have signed the motion.

Contents of the EDM 874

The early day motion called to give the FCA the powers described above, which was tabled on 11 November 2013, states, among other things, that the House of Commons notes that “potentially tens of thousands of businesses may have been sold inappropriate complex financial products including fixed rate swaps and embedded swaps.” The House notes further that many of the embedded swaps were sold without the buyers being properly informed as to either the conditions or the costs of their investments. They are therefore calling on the Government to ensure that proper regulation is in place in the future and that there is “a review and access to redress for those affected in the past.”

What has been done so far

Almost £3 billion have been set aside to compensate businesses that have been affected by this scandal. The FCA has also confirmed that all banks, with the exception of Barclays, have divided redress payments to the victims of mis-sold interest swap rate agreements.

Concerns that still remain

The real purpose of the aforementioned £3 billion was reimbursement for the money that was used to actually pay for the products but not for the losses that have caused thousands of British businesses to go bankrupt. Among the losses are:

  • loss of profits and interest
  • missed opportunities for expansion
  • bank charges
  • litigation fees

A statement of any substantial amounts that are available to cover these losses has yet to be drawn up. Nor is it really clear, according to FCA Chief Executive Martin Wheatley, whether the bill for the interest rate swaps will completely match or exceed the £17 billion that banks have apportioned for PPI claims. MP John Thurso is seeking to bring business loans under government regulation. It will take a long time for the problem to be sorted out.

News for Interest Rate SWAPS

Interest Rate Swap Payouts Reach £20m by Banks

The payouts made by the four largest UK banks as compensation for mis-sold interest swap deals has already reached £20 million. According to figures released by the Financial Conduct Authority (FCA), an estimated £3 billion has been earmarked for compensation. In August 2013, £500,000 was paid in compensation, and £2 million was paid out in September. In October 2013, banks paid out £15.3 million in compensation.

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Banks Lose Legal Battle, Swap Compensation Claims May Rise

Barclays and Deutsche Bank have recently been designated defendants in civil lawsuits filed by current lending customers. The banking institutions previously intiated an independent review of their loans that had included an additional insurance product called an interest rate swap. The interest rate swap product allowed the interest rates on the loan outstanding to move against any interest rate changes in the open derivatives markets. Any interest rates that moved negatively would be hedged with the additional interest rate swap product that was being sold to new customers.

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Swap Claims Compensation Too Slow, Says FCA

The Financial Conduct Authority (FCA) has stated that compensation for swap claims has been too slow, and that some businesses may suffer because of the delay. This has caused a large amount of frustration on the part of customers who were sold these interest rate swap deals and have suffered as a result.

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Preparing Businesses for an Interest Rate Swap Claim

The interest rate swap mis-selling fiasco has garnered a lot of attention during the past year. Over 12 months after the first cases went up for review, the claimants are just now receiving the compensation they deserve. Although it may seem like businesses around the country are now experiencing financial windfalls, there is much work that needs to be done before anyone can expect to receive compensation from their interest rate swap mis-selling claims. It has become quite clear that the process is much more involved than a PP mark-II.

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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.