MIS-SOLD SWAPS

CLAIMS AGAINST MIS-SOLD SWAPS (BUSINESS LOANS)

Background to Swaps Mis-Selling

Many businesses across the UK have been affected by the mis-selling of Interest Rate Hedging Products or ‘Swaps’ as they are more commonly called.

From around 2001 to 2011, banks sold Swaps to protect businesses from the potential of rising interest rates. These Swaps were typically provided alongside a business loan but were not always sold properly.

The main banks that sold Swaps include:

Other banks that sold these Swaps and hedging products on a smaller scale include:

HOW DO I KNOW IF MY BUSINESS HAS BEEN EFFECTED?

A Swap or hedging product can be a complex product for many businesses to understand. Because these products are so complicated, banks are required to follow certain rules, regulations and standards when it sells these products. On many occasions the banks failed to meet these standards which resulted in the hedging product being mis-sold. In fact, according to the Financial Conduct Authority (FCA) it is estimated that over 90% of hedging products were mis-sold*, so if your business has one of these products, then there is every chance that it was mis-sold and you can claim compensation to put things right.

When the banks sold these hedging products they tended to target certain industry sectors, such as:

The business loan and hedging product are usually two separate products. If the bank that sold the Swap or hedging product didn’t follow certain rules and regulations then it is likely that the product was mis-sold. Key things to look for to indicate if the Swap was mis-sold include:

In short, the Swap was clearly too complicated and therefore unsuitable for the business. It is unlikely that the owners of the business would have understood the hedging product in any event.

The FCA Review Process

Due to the widespread mis-selling of Swaps and hedging products, together with the serious failings of the banks, the FCA has set up a scheme to review whether these products were mis-sold to businesses.

If your business is deemed to be a “Non-sophisticated Customer” then you are entitled to have the sale of the hedging product reviewed by the bank that sold the product. Banks are currently writing to businesses to make them aware of this review process, however, many businesses will still need to actively ‘opt-in’ to the review process if they want the sale of their hedging product reviewed.

The review process means that the same bank that sold the business the hedging product is responsible for determining whether the product was mis-sold and if so, the amount of compensation due. Understandably many people may feel uncomfortable with this process and look to the help of an adviser to assist them. If the business did not understand the hedging product when it was first purchased it may be unlikely that it will fully understand the review process and any alternative hedging product that it is offered by the bank as part of the process.

We are currently seeing many examples of businesses that have not used an adviser and have been disappointed with the end result of the review process. This could be where the bank has determined that either the hedging product was not mis-sold or that it was mis-sold but the business is not entitled to any compensation in any event.

IS THERE ANYTHING I SHOULD BE AWARE OF?

Yes. There are potentially three other key things to be aware of.

(1) Fixed Rate Loans and Tailored Business Loans

It may be that the bank did not sell you a separate Swap or hedging product to the business loan, but rather provided you with a Fixed Rate or Tailored Business Loan (“TBLs”).

TBLs are a kind of hedging product where the Swap is “embedded” within the loan rather than running separate to the business loan. However, TBLs typically also came with high ‘break costs’ which should have been explained before they were sold. If you have a TBL or Fixed Rate Loan, currently you can’t use the FCA Review Scheme to claim compensation, but there are potentially other options available to you if you believe that you have been mis-sold one of the products.

(2) Statute of Limitation, 1980

If the Swap was sold more than 6 years ago, so in 2007 or before, then you may potentially be ‘time-barred’ from bringing a claim against the bank in court.

If your business is deemed to be a “Non-sophisticated Customer” then you can still have the sale of the hedging product reviewed in the FCA scheme, however, if the bank determines that the hedging product was not mis-sold then there is no appeal process in the scheme and the business will either need to litigate or, if they are deemed to me a ‘micro enterprise’, take the case to the Financial Ombudsman (FOS) if they wish to pursue compensation. However, if the business has been time-barred it will not be able to pursue a claim in court.

It is therefore very important that if you think that you were potentially mis-sold any type of hedging product then you should act now.

(3) Consequential Losses

If you can establish that the hedging product was mis-sold and the bank acknowledges that this has caused financial losses, then in addition to claiming compensation for the losses directly associated with hedging product, you can also claim for consequential losses, if this is relevant to your claim.

Examples of consequential loss, or loss of opportunity, include:

Remember that consequential losses are separate to “interest” and may require the specialist skills of Forensic Accountants to establish and pursue such losses.

Why Choose Us?

We work with a leading team of mis-sold Swaps claims specialists that include investment bankers (who sold these products) together with lawyers who have significant experience in banking litigation. We believe that a combination of this highly specialised skill set is what is required to ensure your claim stands every chance of succeeding and that you achieve the maximum amount of compensation if you have been mis-sold.

Our approach to a successful claim is to seek a commercial solution for the business rather than a legal one. We prefer to ‘work with’ the bank rather than take an aggressive approach. Many businesses still need to rely on the support of their bank, despite the review of the mis-selling of the hedging product, which should not adversely affect the banking relationship.

We are able to help businesses claim compensation in the following situations:

We can also provide the following additional services:

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