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FSA reviewing interest rate swap ‘misselling’

The FSA is reviewing the sale of interest rate swaps in the wake of claims they were missold.

The swaps are designed so banks cover the cost of increased payments in the event of interest rate rises while if rates fall, the customer has to pay the bank. Many of the products were sold between 2006 and 2008.

Lawyers who have taken on cases of alleged misselling of the swaps told 40 MPs at a meeting last week that clients were not warned that if rates fell they would face penalties.

Treasury financial secretary Mark Hoban confirmed the review is taking place in a response to a parliamentary question from Labour MP Jim Cunningham.

He says: “The FSA is currently carrying out a review of this issue. As part of this, the FSA are considering additional information from the small businesses that purchased these products, to help them better quantify the size of the issue and to establish whether any banks have failed to comply with their obligations under the FSA conduct of business sourcebook.”

An FSA spokesman says: “The work we are doing at the moment is to find out more about the products sold, how they were sold, and whether they met customers’ needs. We have already received some detailed information from banks in connection with their sales of interest rate swaps which we are considering and we have also spoken to a number of customers who have been affected. If we find widespread evidence of breaches or misselling we will take appropriate action.”

Last week, Money Marketing revealed the MPs involved in last week’s meeting have written to the Treasury select committee asking it to launch an inquiry into the issue. They also agreed to table a request for a backbench business debate.


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There are 8 comments at the moment, we would love to hear your opinion too.

  1. We cannot put all the blame on bank’s shoulders. Client also have their part of the blame for not making informed decisions.

    Otherwise this will end with grotesque and surreal cases like that Turkish shop-owner who bought an IRS even though he didn’t speak English at all and now is suing Barclays because he argues he was missold!!! How can you blame the bank for that?

    Is it only me who believe the whole system has gone bananas?

    The Big Fish

  2. Richard Brydon 2nd May 2012 at 7:22 pm

    If the taking out of these swaps was a condition for securing a loan, and, if, then, the borrower finishes up out of pocket, surely the lender must be at fault. The trouble may be that the paperwork doesn’t reflect that the swap sold as a condition and the banks’ will try to say: “We offered the swap. We didn’t advise the borrowers.”
    The FSA are only involved now because of public opinion and not out of the kindness of their hearts.
    For me, it’s a clear case of mis-selling. The sales must have been motivated by commission and not to do the best for the borrower. Banks’ will find a way to screw us. When PPI became a problem, they merely shifted to something else that made them money.
    As for the man who couldn’t speak English: That cannot be an excuse to flog something that the great bard himself would find hard to understand never mind a foreigner with a smattering of English.

  3. Michael Fallas 2nd May 2012 at 9:38 pm

    Funny isn’t it that we can bail out the Banks when they make massive mistakes but I remember all those who lost everything when the Conservative Government made a massive mistake with the ERM (Exchange Rate Mechanism) and and interest rates rose to 15%.

    Funny how all those people who lost out many losing their homes who made no mistake at all were not compensated !!

    Blame seems very one sided to me.

  4. The Big Fish

    From a Big Bank?

  5. Evan – he may mean “fish” in the poker sense…

    Been taken to the cleaners much, TBF?

  6. Anonymous | 2 May 2012 7:22 pm

    All sales, in finance as in any other sector are motivated by comission, bonus, pay rise, promotion, etc. Normally, sales staff must make a suitability assessment if they are providing advise. If not it is a non-advised sale whereby the client assumes the risks on his own account. What is wrong with offering something additional? When I go for my coffee every morning I’m offered a muffin, when I fly I/m offered car hire, etc, but I take my informed decisions.

    And regarding the Turkishman, I’m not sure an IRS are so difficult to understand: if rate go up we pay you, if down you pay us. The problem is that people don’t read the details, (how much can it go up or down, etc) and buy even though they don’t understand this, but it is surely their responsiblity, isnt it? How does the sales person know how much the client knows or is playing a “i-don’t-know-anything” game? If they client wants it, you warn him/her and it is their responsibility.

    The Big Fish
    (And no, I dont work in a big bank, nor it is related to poker. I am a blogger with a blog of the same name)

  7. In response to ‘Big Fish’s’ regarding clients:
    If you are selling a product or providing a service, it is your responsibility to understand your clients requirements and expectations, knowledge and understanding of the product/ service being provided and to protect them and act in their best interests.

    Legally you should be fulfilling these roles,

    That is all….

  8. I’ve actually seen one of these cases done by one of our major banks. It persuaded a small landlord to sign an appropriateness statement to try to avoid responsibilities that it would otherwise have had as the entity that recommended the transaction (which it did). The appropriateness form is not a valid way of conducting that test under COBS/ MiFID.

    If as a bank or other financial institution you enter into a swap transaction with a non-professional without a proper appropriateness test, you should be in deep trouble.

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