On first reading there may be some good news for anyone caught up in the mess that has been the compensation scheme for the mis-selling of Interest Rate hedging products (IRHP).
The Financial Conduct Authority (FCA) has said that it is willing to investigate how redress has been given to SMEs by high street banks under the review.
Bowing to political pressure, and hundreds of complaints from businesses, the FCA will conduct a review of the effectiveness of the compensation scheme. The FCA has said that it is confident most people received a fair outcome. However many businesses criticised the scheme stating that they were either excluded from the scheme altogether or that the pay-outs in no way covered the losses incurred.
Slater and Gordon has assisted in sending many complaints to the FCA dating back to 2012 and received nothing but the standard response that the review is being overseen by “Independent Reviewers”. We now know that “supervision” is woefully inadequate and the banks negotiated a more lenient and beneficial review for themselves than was originally anticipated.
We believe main issues with the scheme are:
- Exclusions of “sophisticated businesses” by using a nominal £10 million cap.
- The use of swap for swap redress. When regulatory breaches have been found in relation to breakage fees providing a similar product with breakage fees is a ridiculous concept.
- The lack of transparency in the way the banks determine redress.
- The lack of disclosure of bank records to assist customers in preparing consequential loss claims.
- The lack of independence of the so-called “Independent Reviewers”.
Hopefully the FCA will investigate thoroughly and come up with a solution; however their comments thus far have been that they will have to await the conclusion of litigation before doing so. This is evidently the FCA yet again kicking the serious failures of the review into the long grass.
What is Interest-Rate Swap Mis-Selling?
Around 2005 high-street banks and financial institutions started selling highly complex financial instruments called interest-rate swaps to thousands of individuals and small businesses seeking loans.
The banks often told customers they needed the swap arrangement to protect themselves from the risk that interest rates would increase, potentially making their loan repayments too high to cope with. The banks often presented the swap as a form of fixed-rate loan, whereas in reality the swap was a complex bet on the movement of interest rates and carried very substantial risks. Many customers were sold or forced into a very expensive dud under which they were worse off but from which the bank made huge profits.
These and other more complicated interest-rate hedging products were usually sold without a full explanation of the risks involved. Many customers simply did not understand what they were signing up to. The risks included that interest rates would fall (as they in fact did) and that the customer would be charged an enormous fee to break the agreement early. The bank, however, would often have a clause allowing them to break the agreement early if the swap started to work against them.
In many cases the interest-rate swaps simply weren’t a suitable product to be hedging against particular loans and some companies lost hundreds of thousands of pounds.
If you were mis-sold an interest rate product, such as the interest rate swap, then Slater and Gordon can help. Call our specialist litigation lawyers on freephone 0800 916 9015 or contact us online and we will call you.