McHale & Co. Solicitors Blog

Interest Rate Hedging Products; FCA Review; A Glimpse of Pandora’s Box

We have now dealt with cases, which have gone through the FCA Review process, for over 100 clients.

The vast majority of decisions, in respect of "direct losses", which are overpayments of break fees and interest, have been successful

Up until December 2014 we had successfully appealed 4 out of 4 cases, on behalf of clients who initially received no offer of redress and, as a result of the appeal, did.

However, this week, we have received two rejections of appeals from NatWest. We believed these cases to be stronger than some of those which had been successful. We therefore thought it important to take stock and consider what is going on behind the banks' and FCA's closed doors in reaching their decisions.

At the outset of the FCA Review, it was apparent to us that the banks and FCA would apply a set of rules and guidance in deciding whether or not sales of IRHPs met FCA standards. If a sale did not meet standards it would be more likely that redress would be paid. We therefore wrote to FCA and banks and requested that they provide us with the rules and guidance they would use to reach decisions. After all, it would only be fair to let all players in the game know the rules, would it not? The answer, apparently, is no. Both the banks and the FCA cited data protection and refused to supply us with the rules.

However, in one of the appeal rejection letters received this week, we now have a glimpse of Pandora's box. The bank relied upon the content of a telephone conversation to justify a client's desire to fix borrowing and therefore to justify the sale of a Swap. We asserted that this desire was as a result of their advice and, in any event, would have been more adequately addressed by a fixed rate loan or Cap, rather than a Swap.

We therefore requested disclosure of the telephone recording/transcript from NatWest and received the following response:

"The bank is not in a position to provide you with a copy of the recording or transcript of the telephone call. We note that the FCA has provided the banks with guidance that: "...whilst we expect banks to explain their decisions, we do not expect them to present their evidence and debate their judgments in the same way that perhaps you might expect in a courtroom – the review does not replicate litigation"

We were perplexed by this response. How can the Review be fair if the banks make their decisions based on documents which they do not have to disclose? We appreciate that the Review cannot replicate litigation but it should, at least, replicate fairness. Further, judgments are not debated, they are given but are based upon both parties having all the relevant evidence.

We have put the above to bank in question and will be in touch with their response!

Categories: Interest Rate Swaps

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