Interest Rate Swaps- Are you a non-sophisticated customer? What if you are not?

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Posted in:Banking and Finance|August 23, 2012 | Join the mailing list

Businesses of all size are suffering as a result of swap deals.

Although the FSA and the Banks have sought to introduce a distinction between sophisticated and unsophisticated customers – in reality swaps have affected businesses and individuals of all types.

This was demonstrated recently by the proceedings commenced by Richard Desmond, against Credit Suisse International.

Richard Desmond is Head of the Northern and Shell Plc Media Group. That company includes brands such as OK Magazine, The Daily Express, Television X.

Mr Desmond is suing Credit Suisse for selling him a £50 million pound derivative product.

In his claim, Mr Desmond indicates a personal net worth of £200 million (excluding residence, pension funds and company values) with Credit Suisse International, claiming that he is currently liable for roughly £20 million under
the swap agreements, with the value of his liability increasing.

The papers go on to say that the swap agreements:-

           1. were incomprehensible except to an expert in complex derivative transactions;

 2. represented an inappropriate large exposure for Mr Desmond in the context of his declared liquid net worth and/or total net worth; and/or

3. involved inappropriate degrees of leverage.

In summary, Mr Desmond claims that the products were unsuitable and/or inappropriately risky.

This is a common theme, both for sophisticated and unsophisticated customers. Most clients we have seen claim that if they had been fully aware of the risks, they would never have entered into the swap. They relied upon information
provided by the Bank that the products they were being asked to take up were appropriate and suitable for their business and their personal circumstances. This was frequently not the case.

If you are concerned that you have been mis-sold a swap or derivative product, please get in touch. The fact that you may not satisfy the definition of a "unsophisticated" client does not mean that you are not
entitled to redress.

[The FSA definition of a sophisticated customer is below: "For these purposes we have defined ‘sophisticated customer’ as: in the financial year during which the sale was concluded, a customer who met at least two of the following: (i) a turnover of more than
£6.5 million; or (ii) a balance sheet total of more than £3.26 million; or (iii) more than 50 employees. Alternatively, the bank is able to demonstrate that, at the time of the sale, the customer had the necessary experience and knowledge to understand the
service to be provided and the type of product or transaction envisaged, including their complexity and the risks involved."]

To discuss how we can provide further advice in connection with these issues, please contact Alison Loveday, Managing Partener and Head of Employment Team, by email to 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 this 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.

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