The interest rate swap scandal has been one of the bigger scandals of the British financial systems, with many large banks such as Barclays and Lloyds ordered to compensate victims of the mis-selling of interest rate swaps. Interest rate swaps are essentially the exchange between counterparties of a fixed interest rate with a floating one. They are used primarily in businesses as a hedge against changes in the interest rate. However, an unforeseen consequence of these products were substantial losses due to falling interest rates, something that regulators believe buyers of the product were not properly informed about. Despite being ordered to issue compensation to victims of the mis-selling over a year ago by financial regulators, banks have only recently made the first payment towards victims of the mis-selling scandal.

Mis-Sold Interest Rate Swaps

Overview of the Scandal: Financial regulators, headed by the Financial Services Authority in England ruled, ruled that over 90 percent of interest rate swaps were in breach of their regulations in the June of 2012. This affects more than 40,000 interest rate swaps and other products that have been sold to businesses since 2001. Furthermore, an independent organization has estimated the value of the average claim at about £500,000, with estimates of the full cost of compensation ranging from £1.5 billion to over £10 billion. In total, 12 banks have been implicated in the interest rate swap scandal. And while the banks have set aside more than £3 billion in funds to settle possible claims, the slow rate of payout has become a scandal of its own, being widely criticized within the media and government. Of the £3 billion in compensation, Barclays has set aside £850 million, and the Royal Bank of Scotland set said £750 million. Furthermore, the major banks have also received approval for their compensation plans from the financial regulators already, with HSBC, Barclays and Lloyds cleared by regulators to start their compensation plans earlier in the year.

Delay in Payment: One of the main reasons behind the slow rate of payout has been identified by Jeremy Roe, chairman of Bullybanks, a campaign group of over a thousand businesses who have been victims of the scandal. He claims that the procedures for payout are “too complex and are causing long delays” due to the fact that every compensation plan has two separate components: the cost of the interest rate swap itself, and the losses that were due to the falling interest rate. The swap claims compensation procedure so far has been on the basis that the two components must be part of a single claim, which takes significantly longer to process. However, there are other banks such as Santander that have paid out the costs of the interest rate themselves separate from the losses from market risk of the products, supposedly due to pressure from former home secretary Jack Straw.

Consequences of the Scandal: While the slow rate of payout has been widely criticized by businesses as well as the government, it is only the latest adverse news from the interest rate swap scandal. According to Bullybanks, over 400,000 jobs were affected or lost due to the scandal, with over £1.7 billion per year in revenue for the Treasury lost as well. This is primarily due to the large amount of small to medium businesses affected by the scandal, being stuck with expensive loans when interest rates were falling. Furthermore, the scandal comes at a time when the payment protection insurance claims and the LIBOR scandals are still fresh in people’s memories. This has already caused a large public and media outcry against the trustworthiness of these banks, with many consumers thinking that large banks will place profit over the interests of their customers.

Interest Rate Swaps: Resource

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.


Interest Rate Swap Claims – Midlands, 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


Mis-Sold Interest Rate Swaps update for SME’s

Frequent reports have highlighted the problems faced by small and medium sized businesses, commonly known as SMEs, who have been mis-sold interest rate swaps. The topic becomes especially sensitive when one considers that SMEs have been projected as being solely responsible for lifting the UK out of its current recession. The fact remains that interest rate swaps taken on by SMEs can lead to catastrophic results.


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.