The Financial Conduct Authority (”FCA”) have released the latest figures for the on-going FCA-led review into the historic sales of interest rate hedging products by the major banks in the UK.
The latest figures cover the period up until the end of February 2014.
The banks involved have stated that it is their aim to have the review process completed by the end of June 2014 at the latest, though the majority of the banks are aiming to have it completed by
May 2014. Therefore it is interesting to note how they are progressing with the review process and how the customers are reacting to their offers of redress.
The level of sales that have been assessed as being non-compliant have remained constantly high throughout this process and remains at the rate of 96% of sales are non-complaint (with prevailing
- Approximately 8,400 customers who have had the sales of their interest rate hedging products reviewed have been informed of the outcome.
- Of these people only 3,430 (approximately 41%) have accepted the bank’s offer.
These results tend to show that there is not universal satisfaction with the outcomes of the review process and the majority of people seem to be reluctant to accept the banks offers of redress.
However, even with the low level of acceptance detailed above, the banks have still made £482m worth of redress payments. This averages out to approximately
£140,525 per customer. That suggests that the payment of consequential losses, originally expected to be many times greater than the cash flows being refunded, has not materialised. It may be that the 59% of customers that have not accepted
(yet) their redress offer may be in the process of having a forensic accountant review their claims (though it may not be this). It seems likely that the average payment (which has also remained steady) will either continue to remain the same, at which point
people will accuse the system of having failed businesses, or it will sharply increase as consequential losses are paid.
The banks have advised of their current positions and it is again clear that
RBS are significantly behind the other banks, having only determined redress in 44% of their sales. It should be recalled that in their final year accounts, released in February, showed that they had been forced to "re-model" their entire review
process because, it is rumoured, the FCA was unhappy with how RBS and the independent reviewer had been dealing with cases. (As an example, Berg has been awaiting an RBS offer since the fact find in June 2013, but RBS and the FCA are unable to do anything
about this). As such, it would appear that they are going to find it difficult to achieve their target completion date of May 2014, given that they have by far the most number of sales to review. However, they are projecting that they will have determined
redress in 70% of their sales by the end of March. This would be a significant step forward in a short space of time and could suggest that they may not be reviewing the sales as thoroughly as they should be.
- Barclays have also fallen behind somewhat, having so far only determined redress in 50% of their sales. However, they have projected that they will complete the review process by the end of June
and so do have slightly more time.
- HSBC and Lloyds remain roughly on track having determined redress in 84% and 64% respectively of their sales.
The overall opt-in rate of customers has increased slightly since January from 81% to 83%. However this still leaves a large amount of customers who have yet to take advantage of their opportunity
to seek redress under the review. With the process scheduled to come to an end in June this year it is important that people don’t miss their chance, as it is possible they may otherwise be prevented from bringing a claim at a later date.
The rate of rejection by the review because of sophistication remains steady also. 10,536 have been classified as sophisticated. 5,334 of these because their IRHP has a notional of greater than £10mil.
4,905 have failed the test relating to size and 297 have been rejected because the Bank feels that they have a reason to be classed as sophisticated.
All 846 interest rate caps have gone on to be offered redress, which is a great surprise. Berg has consistently informed clients that if there is anything untoward in the sale of a Cap a formal
complaint should be made (and has been successfully in getting full redress for these clients).
- 126 remain to be classified as un/sophisticated.
- 515 customers have been offered no redress.
- 581 have been offered an alternative hedge (other than a cap), which is much less than had been anticipated.
- 1,283 customers elected not to take part in the review after having been invited.
It remains to be seen whether the banks will be able to keep to the completion deadlines that they have set themselves. However what is clear from the FCA’s figures is that the customers are not
entirely satisfied with the offers of redress from the banks and there is some hesitancy to accept these offers.