What are the FSA Pilot Findings?
On 31 January 2013 the FSA published the findings of pilot reviews completed by Barclays, HSBC, Lloyds and RBS. The pilot reviews were conducted after an FSA review in 2012 into sales of interest rate hedging products found that there had been ‘serious failings’ in the selling of these complex financial products. Subsequently, 11 banks agreed with the FSA to review around 40,000 of sales of various interest rate hedging products to ‘unsophisticated’ customers entered into after December 2001.
There were 173 cases reviewed by the FSA. The FSA concluded that in over 90% of those cases the banks did not comply with one or more of the FSA’s regulatory requirements and that compensation should be awarded in the vast majority of those cases. As a result, Barclays, HSBC, Lloyds and RBS have agreed to continue the review in line with the FSA’s findings.
The review of sales by the FSA of six other banks - Allied Irish Bank, Bank of Ireland, Clydesdale, Co-operative Bank, Santander UK and Yorkshire Bank – is due to be published by 14 February 2013.
Does my case qualify for review - am I an unsophisticated customer?
The test applied to determine whether a customer is ‘unsophisticated’, and therefore whether a customer’s case qualifies for review, has changed as a result of the Pilot Findings. Contact us if you are in any doubt as to whether your case now qualifies for review or you are concerned your case is no longer eligible for review.
If I am an unsophisticated customer, how will my case be reviewed?
The FSA emphasised that it would expect to see evidence of banks conducting adequate suitability reviews before hedging products were sold and the provision of information which was comprehensible, fair, clear and not misleading in relation to both product risk and over-hedging i.e. when the duration and/or amount of the swap would be disproportionate to the terms of the underlying loan. The FSA has particularly focussed on the importance of banks being able to show that they had provided customers with sufficient information to be able to understand the potential size of the break costs which would be incurred prior to the hedging product being entered into.
If it is found that you were mis-sold an interest rate swap then you can expect redress which is ‘fair and reasonable’. What constitutes fair and reasonable redress in each individual case will be different; for example, it could mean termination of the swap and repayment to you of all the interest payments you have made to the bank or it could mean that you are simply moved onto an alternative product or it could mean no redress at all. If you end up with redress following review which you are unhappy with, contact us to find out what your options are.
How long will it take for my case to be reviewed?
The FSA expects that reviews could take up to 12 months. Given the volume of interest rate swap claims we estimate there are, we believe that this is a very conservative estimate. In light of the fact that a moratorium on payments whilst a review takes place is determined on a case by case basis, redress, if it comes, may be too little too late for many customers. Also, another issue facing those who let the banks take time to complete the review of their cases is that a claim through the courts may become time-barred – there is a primary limitation period of 6 years that must be kept in mind during the whole review process, particularly because many interest rate swaps were entered into between 2005 and 2008. If you are concerned that time is of the essence and you may lose the right to bring a claim through the courts then contact Dominic Blakeley in the dispute resolution team for advice.
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