McHale & Co. Solicitors Blog


The great fanfare that heralded the publication of the FSA Interest Rate Hedging Products-Pilot Findings" proved to be more exciting than the report itself. The sense of anti-climax from customers who were taken for a ride by the banks is palpable. Behind the news headlines of "90% of Swaps miss-sold" lies a
huge amount of fudge and backtracking. The devil is in the detail as always, but the bogeyman lurking here could lead to many people's hopes of a fair outcome dashed.

Let me declare a vested interest here: our firm will make fees from people that we help with their claims. That said the banks must be laughing at the way that they have manipulated the regulator into putting on the front page of their website today the legend: "Customers of these banks will be directly contacted by the banks and will not need to involve other advisors". Really?

Clearly the banks are to be trusted now. The fact that people who took appropriate advice when presented with these Swaps in the first place declined them shows the value of quality advice. Why would anyone want advice on the way that redress for consequential losses will be calculated? These "unsophisticated" customers must understand that the banks will use "the application used when considering loss in claims in tort and for breach of statutory duty" (all these quotes are from the report by the way). Why would anyone want a lawyer to explain that? Or what fool wouldn't be able to consider the appropriateness of being offered a "vanilla collar" as an alternative product by way of "fair and
reasonable redress", without having an independent Treasury expert. The mind boggles at the way that the FSA tells people to present to the banks like lambs to the slaughter.

Other issues that are going to cause fun:

  1. The change to the definition of unsophisticated is not at first blush unreasonable but any line in the sand
    leads to hard cases just over the other side. The real problem remains. The bank can still decide on the basis of "the experience and knowledge of the customer" that they are sophisticated.
  2. In deciding whether a sale was compliant from a regulatory point of view this will be done on a "case-by-case assessment of all relevant evidence".
  3. In deciding whether there was a miss sale the banks will "need to consider whether, taking into account all the circumstances, it is reasonable to conclude that the customer could have understood the features and risks of the product" (my emphasis). This test beggars belief. It doesn't matter that the customer can produce evidence to show that they didn't understand-they "could" have so it's ok lads!
  4. Back to redress: the FSA candidly point out that "redress will not be owed to the customer in all cases where the sale did not comply with the regulatory requirements". (their emphasis!). Whilst this must be right in principle I think it shows the direction of intended travel.
  5. Timescales. A bit wooly to say the least! So the FSA "will be writing to the customers of the four bakns covered by this report in the coming weeks to inform them of our findings". So not sure
    when it is considered that the individuals redress process starts. They also "accept that for banks with larger review populations this may take up to 12 months". Clearly with a whole 4 institutions to deal with it would have been tricky for the FSA to find out what the numbers for each bank would have been! I think it's safe to say that 12 months+ will be the norm?

I could go on and will when I have had further time to digest but for now people the message is clear: Don't be off talking to fancy lawyers and Treasury Derivatives experts, what could they know? Sit back, be told what to do and wait your turn to have salt poured on your wounds.

Leave a comment

Leave a Reply

(Your email will not be publicly displayed.)