Interest Rate Swaps – A Big Week Ahead

28th Jan 2013

Thursday brings the results of the pilot scheme, under the control of the FSA (soon to be the new Financial Conduct Authority), into the banks miss-selling of Interest Rate Swaps. This is a hugely significant step on the road to recompense for many SMEs who have suffered greatly.

From my own discussions with one of the country’s leading experts on derivatives, and a number of politicians, it is clear to me that the pressure being brought to bear for the FSA to “water down” their findings is very real indeed. With a Treasury department in a fundamentally Conservative government, one may have expected a certain amount of natural empathy with the banks. This is tempered with the fact that the victims in this scandal are SMEs with whom the Conservatives also have a natural empathy. Throw into the mix the “real politic” angle of the fact that the banks are significantly in public ownership and it is easy to see that there are factions in the Treasury pushing for different outcomes.

In my view the new FSA cannot , and will not ,allow itself to obviously bend to pressure. I think that Thursday will bring great joy to victims of Bank miss-selling. I am equally sure that Thursday will still only be the beginning of the story. The reality is that the Treasury will not want the banks to write out a cheque for £10bn on Friday and the pressure will continue to be applied. I believe that there will still be many battles ahead for the victims and that the FCA and that many levers will be employed to both keep them out of the redress scheme in the first place and secondly to manipulate what is “fair and reasonable redress”.

In attempting to manipulate the definition of “Unsophisticated customer ” is where pressure will be brought to bear I would suggest. The present scheme parameters do allow fair degree of subjectivity here and I think that there will be many people being told that notwithstanding the fact that they fulfill the criteria as far as turnover, balance sheet and number of employees is concerned, they are being treated as “sophisticated”. This can be for any number of reasons: formal qualifications (accountants beware!), number of years in business, previous business experience etc etc. I say this because a letter that I received from a bank, before the parameters of the scheme were announced in June, spent a significant amount of time covering the business history of my client. It is exactly this sort of thing that will now be used to keep people away from the scheme.

The issue of Limitation still looms large in the background and I can’t believe that lengthy delays will not be the norm in relation to claims that do go into the redress scheme.

Roll on Thursday!

Contact Us