As the global economy remains weak, there is more litigation over mis-sold interest rate swaps to small businesses. When a company starts to have financial problems, it might consider lawsuits to get back money from investments gone bad. It might be a desperate gamble but it is becoming more commonplace.

Mis-sold interest rate swaps (IRSA)

“Don’t Change a Horse in Midstream”

With the continued emphasis on mis-sold interest rate swaps, it seems a bit odd for the UK government to completely revamp its regulatory agency. The Financial Conduct Authority (FCA) replaced the Financial Services Authority (FSA) on 1 April 2013. A change suggests an inadequacy in the previous institution.

Under the FSA, the question of “sufficient knowledge” became an issue for determining whether an interest rate swap was mis-sold to small businesses. The business investors must have had sufficient knowledge to understand the complexity of these interest rate derivatives. The FSA determined that if a small business was worth more than £2.36 million and had more than 50 employees, it was intelligent enough to understand the interest rate swap.

On first impression, to base investment knowledge on the wealth of a business seems very odd. That is like saying a multinational corporation making bread pudding should be an expert on nuclear fission. Knowledge in one field does not automatically translate into knowledge in another field. Every day, the rules and regulations governing High Street banks are more closely resembling a Monty Python skit.

“Caveat Emptor”

The unwritten rules of financial investment is Buyer Beware. In every trade, there is a buyer and seller. Both cannot be correct.

Small businesses have argued that they were targeted by bankers because they were distressed. These companies might have purchased the interest rate swap as a hedge for a business loan. All parties agree that derivatives are very complex and it is difficult to win a case arguing that they were mis-sold.

“Consumer Rage”

During good times, every one goes along with the bandwagon. When small businesses lose money, they must prove that their case is unique in terms of being mis-sold a financial investment. The individual mis-sold mortgages were based on people not being able to afford the payments. But to transfer this “wealth” standard from individuals to businesses seems incongruous.

Consumer frustration remains as the bottom line worsens: homeowners losing houses and businesses going bankrupt. This has led to banker lawsuits around the world. There are even international arrest warrants for criminal bankers.

“More Manipulation Alleged with Icap”

Banker lawsuits over mis-sold interest rate swaps to small businesses are gaining momentum with the continued admissions of manipulation by financial institutions on both sides of the pond. Large New York and London banks were implicated in rigging LIBOR. The Royal Bank of Scotland was fined £391 million for LIBOR fixing.

Along with LIBOR, Simon English of the “” wrote about another manipulating scandal on 09 April 2013. This one involved Icap, a middleman for banks in New York. The Icap claims center around “front-running” and “wash trades” being a form of manipulating prices for the sake of broker profits.

“Killing the Goose that Laid the Golden Egg”

The problem for the United Kingdom banks is fundamentally based on the need to re-establish faith and trust in the financial sector. All small businesses have a natural hesitancy to invest in sophisticated financial instruments because 1) they are too complicated, 2) fear of loss and 2) the system might be rigged.

With the continued reports of manipulation, losses and litigation, more small businesses will be scared away from investing in derivatives. While the High Street banks made impressive profits in the past, they might have destroyed their future business. Few investors will trust manipulated markets.



Maple Financial Interest Rate Swap Claims

We have a specialist team of solicitors dedicated to dealing with the mis-selling of interest rate swap protection products by the banks. We are very happy to review these relatively complex 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 redress.  Maple Leaf Financial will review your interest rate product and we will be happy to discuss your individual concerns and requirements : 0800 7747624

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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.