Six more banks have agreed with the FSA to fully review their sales of interest rate swaps and assess whether products have been missold.
Allied Irish Bank (UK), Bank of Ireland, Clydesdale and Yorkshire Banks, The Co-operative Bank and Santander UK have now agreed to review interest rate swap sales in line with the approach set out by the regulator last month. It follows earlier similar agreements made between the FSA and Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland.
The FSA announced last June it had found “serious failings” in the way interest rate swaps were sold, prompting 10 banks to agree to review the sale of 40,000 swaps made on or after 1 December 2001.
The FSA then established a pilot review to test the effectiveness of each bank’s approach ahead of the banks beginning a full review of their swaps sales.
Last month the FSA published the findings of the pilot review carried out by Barclays, HSBC, Lloyds, RBS and independent reviewers in 2012. It looked at 173 sales to non-sophisticated customers and found over 90 per cent did not comply with one or more regulatory requirements.
In an update on the swaps review last week, the FSA says its pilot findings relating to the other six banks echoed the earlier results, with over 90 per cent failing to comply with regulatory requirements. The FSA says a significant proportion of cases reviewed in the latest pilot are likely to result in customer redress.
Bank of Ireland originally argued its number of swaps sales was small and the products were only bought by “sophisticated” customers.
But the FSA says: “The pilot demonstrated that some Bank of Ireland customers may be eligible to have their sales reviewed. The bank has agreed that in such cases it will review sales in line with the agreed approach.”
Another company which sold swaps, the Irish Bank Resolution Corporation, formerly Anglo Irish Bank and Irish Nationwide Building Society, went into special liquidation on 7 February. The regulator is working with the liquidators to understand the implications of this for the review of swaps sales from UK branches of IBRC. The FSA says it will provide an update as soon as possible.
Banks will have to pay redress to customers where they failed to provide clear, fair and not misleading information on the swap’s product features and risks in good time before the sale.
The FSA expects banks to complete their sales review within six months, though says for banks that sold a higher volume of swaps this process could take up to a year.