Businesses that have been mis-sold interest rate ‘swaps’ by banks may need to take action.
Following a two month review the Financial Services Authority (FSA) concluded last month that there were “serious failings” in the way interest rate swaps products had been sold to small business customers by the big four high street banks – Barclays, RBS, Lloyds and HSBC.
The products sold were supposed to help protect businesses against interest rate movements. However, many businesses complained that the swaps were too complex and badly explained by the banks, being sold alongside and often as a condition of a loan.
The FSA has ordered the banks to review sales and initiate a process for customers to claim redress where necessary and this month extended that scheme to Allied Irish Bank, Bank of Ireland, Clydesdale and Yorkshire banks, Co-operative Bank, Northern Bank and Santander UK.
Critics of the FSA’s approach point to the fact that the reviews are to be carried out by the banks themselves (albeit with independent reviewers) and that the scheme only applies to “non-sophisticated” borrowers i.e businesses with at least two of the following three criteria: turnover of £6.5 million or less; a balance sheet total of £3.26 million or less; and not more than 50 employees – thresholds that are too low to help most medium-sized businesses.
Furthermore a borrower will not be considered a “non-sophisticated” investor if (in the opinion of the bank) it had the necessary experience and knowledge to understand the swap and its risks.
For those businesses not covered by the review process it will therefore be necessary to take any claim to court but, given that the FSA say that the vast majority of these products were sold between 2005 and 2008, there is a danger that many such claims will (if they are not already) soon be “time barred” (i.e. not brought within the 6 year limitation period).
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