The Interest Rate Swap mis-selling saga has taken a few twists and turns over  the past year.  On the 3rd of June 2012 the FSA released their findings on Interest Rate Swaps to the Public. However in correspondence between the FSA and the Treasury Committee, the FSA reveals that they are “aware about the issue involving SMEs and sale of interest rate products in 2010 and 2011”.


FSA, Treasury Committee & Interest Rate Swap Mis-Selling

On March 19, 2012, Treasury Committee Chairman Andrew Tyrie sent a letter to Financial Services Authority Chairman Lord Turner and the Board of the Financial Service Chairman Sir Nicholas Montagu. He expressed his concern about the reports coming from small businesses about the way major banks sell complex interest rate products. He pointed out the following areas of concern.

• Actions that the FSA had taken to date or investigations
• Outcome of the investigations
• Evidence that banks sold these products to small businesses inappropriately
• Confirmation that FSA plans on investigating these problems and actions to address
• Number of complaints that FSA received similar to these issues
• Referral of individual complaints that the Financial Ombudsman Service deems ineligible to be considered.

On April 23, 2012, the FSA sent the answers to the Treasury Committee through a letter. The FSA provided information on the regulatory and compliance regime for small and medium-sized enterprises. The letter also explained the rules for the conduct of firms that offer SMEs either advised or non-advised investment transactions.

The Regulatory Regime at Present

The letter emphasized that the level of customer protection being delivered varies depending on the customer category. This idea has been derived from the EU’s 2007 Markets in Financial Instruments Directive. It is the current regulatory regime that the FSA observes.

• Eligible counterparties include stockbrokers, investment banks and other financial institutions.

• Professional categories includes larger companies that are not FSA-authorized and regulated.

• The retail category includes smaller business and private individuals that are not FSA-authorized and regulated.

However, there may be cases that customers are treated differently. For instance, professional customers may choose to be treated as retail customers and take advantage of a higher investor protection level. Similarly, a retail customer may be treated as a professional customer only with a bit lower investor protection level.

The letter also explained the difference between the existing regulations and the ones from 2007. According the FSA, they were already aware of certain problems related to the interest swap products. It could have been the result of the changes in the 2007 regulatory regime. It was the time when some small businesses shifted from the professional to retail category. They also noted that the number of SMEs categorized as professional had been greatly reduced. However, the FSA reiterated that there were no implications that any sales were made prior to 2007.

Financial Complaints

The existing regulatory regime restricts the right to complain to ombudsman services to a subset of retail customers. The FSMA states that it is the ombudsman’s responsibility to provide informal and fast dispute resolution in lieu of the courts. The FSA’s duty is to set the ombudsman’s services. However, the 2001 regime restricts ombudsman access to SMEs with turnover of less than £1,000,000 every year. The FSA admits that it is mindful that the reason behind the existence of an ombudsman is to address differences in the bargaining power and resources that may come between authorized firms and customers when there is a dispute. It also covers the fact a complainant need not pay fees.

The 2007 regulatory regime has changed the definition of retail customers. The FSA thought that it was not important to connect eligibility to complain to the ombudsman service. SMEs can file their complaints with the ombudsman about breaches of the FSA rules. However, they have to consider an SME taking the action to court if it does not meet the requirements set by the ombudsman and they believe that they have obtained losses bigger than £150,000.

FSA Answer to Interest Rate Swaps

The FSA is aware about the issue involving SMEs and sale of interest rate products in 2010 and 2011. The FSA categorized these issues in different ways and required firms involved to conduct a review of their systems and address problems. The FSA is now doing more work in order to understand the type of products sold.

The FSA understands that there are a number of products made available for SMEs intended to reduce vulnerability to fluctuating interest rates. The FSA is looking at areas such as product design, practices, sales processes and incentives. Should they find evidence of mis-selling or rule breaches, they will take appropriate measures to address them. The letter pointed out that the committee also has some issues to address.


Original Letters to View


Interest Rate Swap News

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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.”

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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 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.