Interest Rate Swaps

You have been mis-sold a financial product if you have not been given proper advice, you have not been provided with the necessary information, and you have not been explained the relevant risks. Thus, you have been sold a financial product which is not suitable for you.

Compensation Solicitors Online are here for you providing the best representation in cases of mis-sold interest rate swaps!

Interest Rate Swaps refer to a range of sophisticated financial products. This is a rather complicated concept which can hardly be explained in simple terms. However, essentially, an Interest Rate Swap Agreement is an agreement between two parties where one stream of future interest payments is exchanged for another. Interest rate swaps often exchange a fixed payment for a floating payment that is linked to an interest rate (typically the LIBOR). However, there are other types if swaps, such as: knock in floor, caps, collars, structured collars, debt default swaps, foreign currency swaps, etc. The complexity of this financial product and the fall-backs in its sale regulation have led to millions of pounds of compensation being owed by banks and other creditors to consumers.

Interest Rate Swaps are a type of hedging products, i.e. they aim to protect a business by mitigating the risk of other financial exposures, such as an increase or decrease in the creditor bank’s interest rates. This can be very beneficial to a business if used skilfully and appropriate rates are set. However, if a balance is not achieved this arrangement may lead the business into insolvency.

In the 1980s, hundreds of thousands of people across the United Kingdom were financially affected by the private pensions mis-selling scandal. Later in the 1990s, the mis-selling of private mortgage endowment policies resulted in the payment of millions of pounds in compensation to consumers. Moreover, there were fines of £1 million for Lloyds Banking Group (Lloyds) and £2 million for The Royal Bank of Scotland Group (RBS). At the beginning of the century, the mis-selling of high risk investment “precipice” bonds to private consumers drew the attention and Lloyds was fined £1.9 million, along with an order to pay at least £98 million in compensation.Another scandal followed: the mis-selling of payment protection insurance (PPI),which as of December 2012 resulted in £8.4 billion being paid in refunds and compensation, the majority of it by the big four British banks: Lloyds, RBS, Barclays Bank plc (Barclays) and HSBC Holdings plc (HSBC).Moreover, Lloyds was fined further £4.3 million by the Financial Services Authority (FSA) for delays in making compensation payments to injured customers.

In 2012, small and medium sized enterprises (SMEs) became the new victims of financial mis-selling.It has been alleged that since 2001 they have regularly been mis-sold derivatives products such as interest rate swap agreements (IRSAs) by British banks, without them appreciating the full extent of the financial risks they took on. These financial products were primarily sold in order to hedge against interest rate rises. Ironically, however, when the interest rates fell significantly because of the credit crisis, numerous SMEs were instead forced to make payments to the banks, or to pay excessive “break”, “breakage”, or “exit” fees to terminate the IRSAs.

Serious failings by British banks in the sale of interest rate hedging products (IRHPs) to SMEs were established by the FSA’s review in June 2012.The FSA’s concerns related to evidence of inappropriate sales of more complex varieties of IRHPs to SMEs; poor sales practices used in selling other IRHPs; evidence of poor record keeping by banks; and sales rewards and incentive schemes possibly aggravating the risk of poor sales practices.

Bob Diamond, CEO of Barclays Bank Plc, has gone on record for the Daily Telegraph to admit that his bank has ‘made mistakes’ concerning the selling of such instruments.

The Financial Services Authority (FSA) was a private company exercising regulatory powers in a quasi-judicial capacity over the financial services industry in the UK between 2001 and 2013.

During its term the FSA’s statutory regulatory objectives have included:

  • Maintaining market confidence;
  • The protection of consumers by securing the appropriate degree of protection for consumers;
  • The reduction of financial crime; and
  • Contributing to the protection and enhancement of the stability of the UK financial system.

It has been alleged that the FSA has failed to impose sanctions for systematic mis-selling over the course of nearly a decade.

The Financial Conduct Authority is one of the successors of the FSA (together with the Prudential Regulation Authority (PRA)) and thepresent regulator of the financial services industry in the UK. Their aim is to protect consumers, ensure the industry remains stable and promote healthy competition between financial services providers. They have rule-making, investigative and enforcement powers that they use to protect and regulate the financial services industry.

The Financial Conduct Authority (FCA) has concluded that Interest Rate Swap Agreements have been mis-sold and banks have been ordered to compensate injured customers.

YOUR CLAIM

If you believe that you or your business have been mis-sold an Interest Rate Swap arrangement, then contact us today for a FREE assessment of your claim!

You may have a claim if any of the following applies to you:

  • Your creditor obliged you to sign up for the derivative in order to get a loan, leaving you without any other choice;
  • The financial product which you were sold was unsuitable and inappropriate for your economic needs;
  • The derivative was mis-priced;
  • Your credit provider breached its common law duties of care to the borrower and/or various rules under COBS and/or FSMA s.150; and
  • In entering into the derivative, you relied on various statements and representations of the credit provider and you were not encouraged to seek independent legal or other specialist advice.

WHY COMPENSATION SOLICITORS ONLINE?

The professionals at Compensation Solicitors Online have long experience in commercial litigation. Our solicitors are experts in derivatives litigation. Considering the complexity and niche character of this particular area of law, it is crucial that you entrust your claim in the hands of our specialist solicitors, who are fully equipped to represent your interests in the best possible way.

Experience and particular expertise is essential in derivatives litigation and can make a great difference when it comes to the amount of compensation you are awarded.

Contact us today and we will assess your claim for FREE!

MORE INFORMATION

BASIC TERMINOLOGY EXPLAINED

Derivative- A financial instrument whose value is derived from the value of an underlying asset or other financial instrument.
Hedging – A transaction or position designed to mitigate the risk of other financial exposures.
Interest rate swap agreement (IRSA) – An agreement between two parties where one stream of future interest payments is exchanged for another. Interest rate swaps often exchange a fixed payment for a floating payment that is linked to an interest rate (most often the LIBOR).
LIBOR (London Interbank Offered Rate) – An interest rate at which banks can borrow funds from other banks in the London interbank market. The LIBOR is fixed on a daily basis by the British Bankers’ Association.

USEFUL LINKS

FCA Handbook and PRA Handbook: http://fshandbook.info/FS/html/handbook
FCA’s IRHP FAQs: http://www.fca.org.uk/consumers/financial-services-products/banking/interest-rate-hedging-products/questions
Financial Conduct Authority: http://www.fca.org.uk/
Financial Ombudsman Service: http://www.financial-ombudsman.org.uk/

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