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.

The issue at hand is extremely complicated, and many cases rely upon tiny details within the individual contracts. Therefore, every business should  receive expert advice before pursuing an interest rate swap claim. By following these five steps, every business owner will be better prepared and able to put themselves into a winning position:

Preparing your Business for an Interest Rate Swap Claim

1. Never Fail to Prepare

Preparation is key when entering into the extensive FCA review process. Those who fail to prepare are much more likely to experience a denied claim than those who review every detail of their contract and position. The FCA review process may seem relatively straightforward, but it is imperative that every business remembers the complex and detailed nature of the agreement that will be under review. The meetings operate under the guise of a “friendly chat,” but every word you utter will be notated and scrutinized. Since there is no right to appeal after a verdict has been made, it is critical that you prepare and give your business the best chance of obtaining compensation for the damages and losses that it has suffered.

2. Be Aware of the Limitation Point

The Limitation Act, which dictates that every claim must be brought forward within six years, reigns over the majority of interest rate hedging products. Most business owners suffer from the misconception that this term begins when the agreement is signed, but the deadline actually starts from when the first advice was given about the hedging product in question. If the deadline is reached while the claim is still under FCA review, you will lose the ability to secure compensation for your claim.

3. Secure a Standstill Agreement

Essentially, a Standstill Agreement allows you to suspend the limitation date by putting the contract on hold. Not only will this provide you with more time and allow your claim to be fully reviewed by the FCA, but it will also keep your right to litigation alive and well if it is necessary.

4. Review the Details of the Agreement

Whilst it is a good idea to secure a Standstill Agreement, every area of a potential claim must be included. The banks will provide you with an agreement, but it may not be in your favor and should never be relied upon. An agreement that is too narrow and lacks specific details will affect your right to litigation or your ability to file a future claim.

5. Talk to a Professional

Even if you do all of the above, making a mis-selling claim against a large bank can be a slippery slope, and you should seek out expert advice. The FCA claims that legal advice is not necessary, but most experts tend to disagree. The banks have a huge amount of capital invested in accountants and solicitors to represent them throughout the review process, so any claimant without similar armour will be overwhelmed and on the defensive more than they would like. The entire mis-selling scandal erupted as a result of the complexity of the products involved. Thus, the product will need to be scrutinized through appropriate legal analysis, authorisation checks, and financial regulations. The majority of claimants are experts in a field other than finance or law, leaving them ill-equipped to perform this level of due diligence by themselves.

It should come as no surprise to know that successfully filing a claim can be a difficult task during the best of times. When the detailed nature of interest rate swap agreements are added into the mix, it is easy to see why many people would be put off by going through the process. However, with many businesses experiencing a fast approaching limitation date, there is no time like the present to to seek redress and receive the compensation you rightfully deserve.

FCA Interest Rate Swap Review Process

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

FCA Interest Rate Swap, Fair & Reasonable Redress

Basic redress takes into consideration the difference between the payments made on an interest rate hedging product and the payments that a customer would have made if the regulatory requirements had not been breached. Although each case is different, there are three possible outcomes for a basic redress:

1. The customers who would not have bought an IRHP will have their IHRP cancelled and they will receive a full refund on any payments they made on their IRHP.

2. Customers who would have chosen the IRHP and those who have not suffered any losses will not receive a redress.

3. The customers who would have chosen a different product that offered protection against interest rate fluctuations will only receive redress based solely upon the difference between payments they made on the product they did not choose and the payments they would have made on a different product of their choice.

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Interest Rate Swap: News & Information

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.

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Interest Rate Swaps : FCA Fair & Reasonable Redress

The regulatory failings of bank interest rate swaps have left thousands upon thousands of disgruntled customers looking for redress. Fair and reasonable redress, including consequential losses, by the banks and the FCA helps put customers in the same position they would have been in if the regulatory failings had not occurred.

The exact definition of fair and reasonable redress is malleable as it varies from case to case. In each case, the testimony of the customer and the evidence is reviewed by an independent reviewer to determine the appropriate redress. Therefore, when discussing fair and reasonable redress, it is important to have an understanding of basic redress and consequential losses.

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RBS exposed to new swap mis-selling

Investec reports that RBS is likely to be the next bank exposed to interest rate swap claims from mis-selling and should be putting extra provisions aside for likely calls for swap compesation.

After the FCA set up the interest rate swap rate redress scheme with the banking sector, only 10 claims have been compensated so date. RBS is the most likely big bank to need to put aside extra provisions to compensate customers for mis-selling of interest rate swaps, reckons Cityfirm Investec.

The rate swap issue is the latest mis-selling scandal to hit the banking sector – still reeling from the PPI debacle. Such interest rate hedging products (IRHP) were designed to protect against rising interest rates but when they fell – customers were landed with a big headache and big bills.

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Justifed Interest Rate Swap Claims

  • discrepancies between the underlying value of the loan and the interest rate swap, with customers being sold swaps which far exceed the term of their underlying borrowing, or where the notional amount of the swap is far in excess of the actual borrowing.
  • substantial discrepancy between the length of the loan facility and the length of the swap product.
  • customers being forced to continue with the interest rate hedges in order to maintain their current lending facility upon renewal.
  • banks failing to explain to their customers the extent of the exit or breakage costs of the swaps and failing to ensure that the derivative products offered meet the needs of the customers.
  • breaches by the banks of their duty of care to customers coupled with negligent misrepresentations by the banks as to the nature or effect of the products sold.
  • failure by the banks to comply under the FSA Conduct of Business.

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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.