You may have heard that 24 MPs have signed a letter to the Financial Services Authority (FSA) calling for pressure to be put on banks to offer an immediate freeze on all interest rate swap payments.
The Telegraph reported that Mr. Guto Bebb, chairman of the All-Party Parliamentary group on swap mis-selling, wrote “There are many businesses who are continuing to enter administration as a direct result of their obligations under their swap contracts”. The banks’ existing offer of suspending swap payments on a case by case basis where the bank determined there was financial distress in relation to meeting ongoing swap payments was said to be insufficient. The MPs considered that more needed to be done to help those still making payments under interest rate swap contracts while the FSA review process is ongoing.
Meanwhile it has been reported that the FSA will delay the results of the pilot redress scheme for those mis-sold interest rate swap contracts. The pilot scheme tasked the banks with investigating 30-50 cases of interest rate swap contracts sold to determine whether mis-selling had occurred and what terms of compensation would be owed. The outcome of the review is now expected at the end of January, although some reports suggest it could be later.
While the FSA review process inches ahead slowly the proposal to freeze swap payments could offer critical relief to struggling businesses, in particular SMEs who seem to have been the customer of choice for interest rate hedging products. It will remain to be seen if this action prompts a wider scale suspension of swap payments, but in the meantime those with interest rate swap agreements should at least be raising the question with their banks.
What are your thoughts? If you have any questions please feel free to contact me or another member of the dispute resolution team on 0131 226 8200.