Interest Rate Swaps – Having Difficulty Taking Advice

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Posted in:Banking and Finance|July 20, 2012 | Join the mailing list

One of the key characteristics of interest rate swap agreements is their complexity. Such agreements were originally devised for use by large corporate and financial institutions. The need to be clear on the purpose and effect of the agreement and their
suitability for each customer was therefore paramount.

When faced with allegations of mis-selling, a key line of defence for the banks is that they do not offer “financial advice”. The paperwork and presentations which were used alongside the interest rate swap agreement usually highlight this. Notwithstanding
such “disclaimers”, the approach adopted by many bank employees was entirely at odds with such disclaimers. In many cases the interest rate swap agreements were “sold”, frequently with some pressure and without a full explanation of the true consequences of
entering into the agreements.

Very often there was no explanation of what would happen if interest rates fell (rather than rise), and critically there was no explanation of the exit fee. Even if there was an explanation, this was often based upon an exit fee which bore no relation to
the likely fee the customer might face.

Although therefore the banks should have been advising customers to take independent advice, clients often did not consider this was necessary. They felt they could rely on the advice given by their bank, who they felt sure would offer them the most suitable
product. Even when customers did try to obtain independent advice, it was not clear who they should take such advice from. There were very few independent financial advisors who had the requisite expertise to advise. Furthermore, the cost of taking advise
was often prohibitive. In other cases, even if customers tried to take advice, they found the banks obstructive in providing the relevant information to enable their own advisors to take a view.

It will be very interesting to see how the Courts approach this issue when dealing with the cases that are now due to come before the Courts on mis-selling. Will the Courts accept the banks’ claims that there was no “selling” or advice given? How will they
be able to demonstrate to the Court that they clearly satisfied one of the founding principles of the FSA to “treat the customer fairly”, which would include ensuring that the customer understood the product and being satisfied that it was appropriate for

For further information as to how you can ensure that your complaint is dealt with by the bank as a priority, please contact Alison Loveday on 0161 833 9211 or by email to

For more information on this issue, visit the Interest Rate Swap

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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