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Interest Rate Swap misselling - FSA announces results of Pilot Review

Posted on Jan 31, 2013 by  | 0 Comments

The FSA has released their report detailing the findings of the pilot reviews of interest rate hedging products carried out by participating banks. Barclays Bank Plc (“Barclays”), HSBC Bank Plc (“HSBC”), Lloyds Banking Group (“Lloyds”) and The Royal Bank of Scotland Plc and National Westminster Bank Plc (collectively “RBS”) agreed to review the sale of around 40,000 IRHPs made on or after 1 December 2001 to certain ‘non-sophisticated’ customers. 

The FSA looked at 173 sales to ‘non-sophisticated’ customers from across the four banks and found that over 90% did not comply with one or more of their regulatory requirements

As a result of the pilot findings some changes will be made to the review approach.  Key findings include :

- Changes to the ‘sophistication test’ to ensure the review is focused on those small businesses that were unlikely to have understood the risks associated with these products;

- A set of redress principles have been created to ensure there is a sufficient degree of consistency across the banks in determining fair and reasonable redress, including in relation to consequential loss; and

- In relation to break costs for the disclosure of break costs to comply with the FSA’s regulatory requirements, the bank should be able to demonstrate that it provided the customer with an appropriate, comprehensible and fair, clear and not misleading disclosure of any potential break costs.

The full review will now commence and Barclays, Lloyds, HSBC and RBS have agreed to conduct the review in line with the approach set out in the FSA report. The banks are expected to aim to complete their review within six months, although the FSA accepts that for banks with larger review populations this may take up to 12 months. The FSA have indicated that they will make sure that the banks will prioritise cases where customers are in financial difficulty.

We will be commenting further on the implications of the report very shortly, and looking at what the review is likely to mean in real terms for clients. In particular we will be looking closely at the issue of redress and how this is likely to work in practice. Watch this space!

Meantime for further comment on the report, click here and here. The Telegraph, who have been following the unfolding swap misselling scandal closely throughout 2012, have also reported today's findings.

If you have any thoughts on the matter or comments please get in touch.

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