FSA report on mis-selling of Interest Rate Swaps released

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Posted in:Banking and Finance|June 29, 2012 | Join the mailing list

The FSA has today announced that it has found serious failings in the sale of interest rate hedging products to some small and medium sized businesses (SMEs).

In a statement, the FSA said ‘We believe that this has resulted in a severe impact on a large number of these businesses. In order to provide as swift a solution to this problem as possible we have today confirmed that we have reached agreement with Barclays,
HSBC, Lloyds and RBS to provide appropriate redress where mis-selling has occurred.’

The FSA concluded that Banks had undertaken a number of poor sales practices including:

 – Poor disclosure of exit costs;

 – Failure to ascertain the customers’ understanding of risk;

 – Non advised sales straying into advice;

– "Over-hedging" (i.e. where the amounts and/or duration did not match the underlying loans); and

– Rewards and incentives being a driver of these practices.

Martin Wheatley, managing director of the Conduct Business Unit, said:

"For many small businesses this has been a difficult and distressing experience with many people’s livelihoods affected. Our work has focused on ensuring a swift outcome for these businesses that form such an important part of the economy. "I am pleased
that Barclays, HSBC, Lloyds and RBS have agreed to do the right thing by their customers and offer redress or a review of past sales. These firms have responded to the need to provide a fair deal for customers by working with us, and I welcome this outcome.

"I am particularly pleased that the CEOs: Bob Diamond, Brian Robertson, Antonio Horta Osorio and Chris Sullivan have provided a personal assurance that they will have responsibility for oversight of this work and will ensure that complainants are treated
fairly. They have also committed that, except in exceptional circumstances, they will not foreclose on or vary existing lending facilities without the customer’s prior consent."

The FSA will now contact other banks which sold interest rate hedging products to see if similar mis-selling practices went on.

The full report can be found here.

Whilst this is positive news to those affected by the mis-selling of Interest Rate Swaps, this may not guarantee the desired outcome for a number of SMEs. Compensation remains available to those whose loss is less than 150,000 pounds via FOS however; those
who have suffered damages more than this amount may still need to consider taking their action to court. For those businesses who are considered a sophisticated customer, it should be noted that they are still required to use their bank’s normal complaint
procedure and will not be covered by today’s FSA review.

Whilst it has been ruled that the banks have mis-sold the products, there is still no guarantee that the banks response will be satisfactory to those most affected.

To discuss how we can provide further advice in connection with these issues, please contact Alison Loveday, Managing Partner, by email to alisonl@berg.co.uk or alternatively you can call Alison on 0161 833 9211.

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