It does appear that momentum is growing behind the interest rates swap alleged mis-selling scandal. Mark Hoban, the Financial Secretary to the Treasury has written to every MP outlining what the key issues are and suggesting
that MPs encourage any of their constituents who feel they have been mis-sold to contact the FSA.
The FSA has already completed its initial review but considered that a detailed investigation was required. The FSA has requested more information from the banks and is continuing to receive information from customers. This should enable the FSA to determine
the extent and severity of poor sales practices, and decide on what further action to take. The FSA has a wide range of powers at its disposal including taking enforcement action where appropriate.
Alison Loveday of Berg comments:-
"It is very heartening to see this matter being taken seriously by the Government. It has worked hard to keep interest rates at a record low to help businesses and particularly SME's. However, as a result of interest rate swap agreements, many SME's are being
put under extraordinary financial pressure. The amounts they have to pay each month to satisfy their loan and interest rate swap agreements have spiralled and when they investigate possible refinancing to take advantage of the lower interest rates currently
available, businesses discover that a massive exit penalty otherwise known as a "break cost" is due.
Many of the costs which such businesses are facing were hidden at the time business entered into the financial arrangement, or were not properly explained. Thus, for example, the SME typically had no idea what the potential break cost might be. Illustrations
were frequently not provided and if they were, they showed minimal break costs which bore no resemblance to the likely break costs in their particular case - which typically will run to many hundreds of thousands of pounds.
Other additional costs include:-
• Additional interest payments;
• Increased lending margins;
• Business review fees;
• Valuation costs, and so on.
Another hidden factor which also impacts greatly on the economy in general is the cost to jobs. It has been said on many occasions that SME's will get us out of the recession. As a result of interest swap arrangements many SME's are under severe financial
pressure. This means that in many instances they have had to cut jobs, or as a minimum they have been unable to grow their businesses and the numbers they employ as a result of such pressure.
Banks typically argue that businesses knew what they were doing when they entered into the arrangements and that the products were sold without advice being provided by the bank or its staff. It is noteworthy that given the complexity of the interest rate
swap agreements, there were very few organisations that could provide advice to SME's on the true nature and effect of the arrangements in any event. Even if attempts were made to take independent advice, frequently the banks failed to provide appropriate
information to enable an independent assessment of the arrangement to be made. An important safeguard was therefore not in place and business owners were entering into the arrangements either relying on what they were told by the bank, or without taking any
It will be interesting to see how the FSA decide to deal with this matter and we await with interest its findings which are expected toward the end of June 2012.
To discuss how we can provide further advice in connection with these issues, please contact Alison Loveday, Partner and Head of our Employment team, by email to
firstname.lastname@example.org or alternatively you can call Alison on 0161 833 9211.
The information and opinions contained in this article are not intended to be comprehensive or to provide legal advice. No responsibility for article's accuracy or correctness is assumed by Berg or any of its partners or employees.
Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of the contents of this article.