Interest Rate Swap and Hedging Product Misselling

In July 2012, the Financial Services Authority (FSA) (Now the Financial Conduct Authority) confirmed that it had discovered serious failings by major British banks who had been mis-selling interest rate swap and hedging products to individuals and SMEs in the UK since 2001.

Interest rate swaps were sold by banks to act as protection to clients in managing the interest rate fluctuations, particularly rate increases, by fixing rates.

The complex nature of these financial products together with the sub-standard practices employed by major high street banks sales teams has resulted in the current acknowledgement of that interest rate swaps and related financial products have been mis-sold.

Instead of interest rate swaps acting as a hedge, or protection against increases in interest rates, the high exit costs and precarious levels of financial risk taken by SMEs creates a financial product which achieves exactly the opposite.

In January 2013, the FSA declared that the major banks’ risks and policies, relating to interest rate swaps were not clearly outlined for customers. The conclusion of the FSA findings on interest rate swap mis-selling was that bank customers who had been mis-sold to are entitled to pursue compensation from the banks for losses stemming from the mis-sold financial product as an interest rate swap claim.

The FSA has set out a set of guiding principles to determine when and how customers are entitled to redress.

Although this particular form of financial mis-selling appears to be widespread, victims – who include small businesses and individuals – must have actually suffered a loss, which can be quantified, which would otherwise not have happened had the interest rate swap product not been purchased.

Another key consideration in the FSA guidelines is whether the bank’s client can be deemed to be “sophisticated”. To be awarded compensation, under the FSA scheme, a client must be deemed as a “non-sophisticated” banking customer. Examples of such non-sophisticated customers being family owned businesses such as hotels, restaurants, garages, or high street shops. The concept being that non-sophisticated customers would not have sufficient expertise on the specific products to understand the risks of Interest Rate Swap products and other complex hedging products.

If the risks and implications of these types of financial products were not been clearly explained by banks to their clients and the bank have not advised whether a particular swap product was suitable product for a particular business, the bank has not discharged its duty to the customer appropriately and the client in such a situation should be compensated.

Banks are currently undergoing their own reviews of their sales practices so far as interest rate swaps products are concerned. The banks who are part of the review include: Lloyds, RBS, HSBC, Barclays, Co-op Bank, Clydesdale Bank, Yorkshire Bank, Bank of Ireland and theUKarm of Allied Irish Bank.

If you or your business has been mis-sold an Interest Rate Swap product and believe that you have suffered losses as a result, you should act now and contact your solicitor or other professional adviser. Taking swift action is advised.

At Gregory AbramsDavidson, we will work for you, advising you as to the legal solutions for your interest rate swap mis-selling claim and will aim for maximum compensation, to put your business in a stronger position.

Regarding our costs, please be aware that not all interest rate swap sales will automatically qualify as mis-selling cases. As such, we may require payment of a modest initial fee to review the documents, depending on the time involved in the initial assessment and the number and length of documents to review in connection with your matter. A full review of all of the information is vital in order to assess the merits of a claim.

If our specialist team believes that your matter requires further investigation we will then seek to obtain an opinion from one of our panel of specialist and experienced barristers.

We will then work through the possible funding options available to you, which will include entering into a Conditional Fee Agreement (CFA), Damages Based Agreement (DBA) or other similar “No Win No Fee” agreement. In order to offer a “No Win No Fee” agreement, we must first assess the likelihood of success.