The FSA released their report on Interest Rate Swaps this morning at 7am. After reviewing the selling of swaps the Financial Services Authority has revealed that it found over 90% of all Interest Rate Swaps were Mis-Sold to small businesses. This decision opens the doors on swap claims that businesses can make against the bank for mis sold Interest Rate Swaps.

The British Bankers Association estimates that there were around 40,000 interest rate swap products sold, this may not sound like a large amount but because these were mis sold to businesses the compensation attached to each swap product could reach 500,000 each, taking the estimated swap claim total up to £18 billion.

PPI claims which were mis sold in their millions has so far cost the British Banks £12 billion.

We will update this page with full coverage from press as the story progresses.

FSA opens door to swaps compensation claims

(Reuters) – The Financial Services Authority said on Thursday the results of a study into the sale of complex interest rate hedging products to small firms by banks had found that the vast majority had been mis-sold.

The findings leave banks vulnerable to a wave of claims and could leave them facing billions of pounds in compensation claims, some derivatives experts have said.

The FSA said it found that, in over 90 percent of the 173 cases examined in the study, the sales did not comply with at least one or more regulatory requirement. It said a significant proportion of the cases will result in financial compensation being due to the customer.


FSA: 90% of interest rate swaps mis-sold

The Financial Services Authority has confirmed that it will conduct a full review into the mis-selling of financial products to small businesses, in the form of interest rate ‘swaps’.

The initial pilot has shown that 90% of sales “did not comply with at least one or more regulatory requirements”. The watchdog said a “significant” number of these small business customers will be entitled to compensation.

The work on the pilot has confirmed the FSA’s initial findings of mis-selling of IRHPs.

The FSA looked at 173 sales to non sophisticated customers and found that over 90% of the sales did not comply with at least one or more regulatory requirement. A significant proportion of these 173 cases are likely to result in redress being due to the custome
ITV article:

FSA targets banks over interest rate swaps

A review of interest rate swaps sold to small and medium-sized businesses by four leading UK banks has found nine out of 10 did not meet regulatory requirements and a “significant” portion of customers should receive compensation, according to the Financial Services Authority.

The FSA on Thursday ordered Barclays, HSBC, Lloyds and Royal Bank of Scotland to review all their sales of interest rate hedging products, including swaps and more complicated products, to small businesses that were “unlikely to understand the risks associated with those products”.

Britain’s biggest banks have already agreed to compensate mis-selling victims after an earlier probe by regulators found “serious failings” in the way customers were sold products meant to protect them from swings in loan-repayment costs. The pilot project was aimed at determining how many cases the banks will have to look at.

Thursday’s announcement comes after the FSA reviewed 173 sales to unsophisticated customers in detail and found that 90 per cent did not conform with regulatory requirements. The watchdog noted that the pilot project had focused on more complex cases and might not be representative of sales more broadly.
The FSA said in June that it had uncovered “a range of poor sales practices” including inadequate disclosure of exit costs and “failure to ascertain the customers’ understanding of risk.”

While it is not clear how big the total compensation bill could be, the watchdog said banks had sold about 28,000 derivatives to customers since 2001.

These products were designed to protect companies from interest rate rises by fixing rates on their borrowings. However, when the base interest rate stayed at historic lows, some businesses were hit with fees and others complained they faced huge penalties for cancelling the hedges or refinancing their loans to take advantage of lower rates.

Some SMEs also said they were told that buying the swaps was a condition of taking out the loan, while others complained of high-pressure sales tactics and large fees to exit the swaps.

The scale of the new review is a rebuff to the banks, who had hoped RBS’s win in the first interest rate swap case to come to trial would translate into a narrower requirement. The FSA decided that ruling, which found RBS had properly advised customers on the risks involved, was too specific to have broad application.

The FSA is still reviewing sales by Allied Irish Bank (UK), Bank of Ireland, Clydesdale and Yorkshire banks, Co-operative Bank, and Santander UK. It said it aimed to announce the scale of customer reviews at those banks by mid-February.

Financial Times:


Interest Rate Swap Claims News

Interest Rate Swaps: Barclays Bank, Fair and Reasonable Redress

Certain interest rate hedging products (IRHPs) have come under question by current banking customers and by several banking agencies within the U.K. These banking products are structured collar financial products that are frequently used to hedge against future interest rate expenses. These complex structured collars were sold to numerous loan customers during the period of time before the great international recession. This financial downturn across the international financial markets created unusual interest rate returns for many of the structured collars sold to Barclays Bank customers.

Read More

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.

Read More

Interest Rate Swaps: Natwest, Fair & Reasonable Redress

Natwest Bank in London has begun a direct redress program for those small businesses affected by several interest rate swap products. These interest rate swap products or structured collars were sold to small businesses as a hedge against any risk associated with the interest rate markets. The small businesses or unsophisticated businesses were allowed to purchase these products. The 2008 financial crisis caused many of these hedging products to be of little value against interest rate changes. Small businesses were left with a financial bill that was significantly burdensome.

Read More

FCA Interest Rate Swap Flow Chart

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.

Read More

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

The following two tabs change content below.

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.