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Mis-Sold Interest Rate Swap Agreements
Has your business been hit by the high costs of entering into an interest rate “swap” or “hedge” (IRSA) agreement with your bank? Was the product you bought not properly explained? Have you been charged a large fee to exit one of these arrangements?
The mis-selling of interest rate swap products by the UK banks has caused significant losses to many businesses and it is possible to claim compensation.
These financial products were marketed by the banks as a way for businesses to protect themselves from future fluctuations in interest rates. However, the reality in many instances is that the banks’ customers have incurred very substantial costs as a result of signing up to these products.
The Financial Services Authority (FSA), which regulates banks, has concluded that many customers did not understand these complex “hedging” or “rate swap” products (some of which amounted to speculating on the future movement of interest rates) and were unaware of the risks involved, particularly when interest rates are low, as has been the case in recent years. Businesses have also been hit by very high exit costs when they have tried to escape the negative effects of these products by terminating them early.
The FSA has concluded that banks have adopted poor sales practices in relation to these products, including:
- Poor disclosure of exit costs;
- Failure to ascertain the customers’ understanding of risk;
- Non advised sales straying into advice;
- “Over-hedging” (i.e. where the amounts and/or duration did not match the underlying loans); and
- Rewards and incentives (for bank staff) being a driver of these practices.
As a result of these conclusions it will now be possible for businesses to claim compensation for costs and expenses they might have incurred as a result of purchasing the IRSA products.
What This Means for Businesses
If your business has been sold an interest rate swap agreement or other form of hedge you may be able to claim compensation. We can help you understand if you have a good claim and help you through what can be a complex process.