Banks accused of being “let off the hook” after interest rate swaps announcement
“Handed a free pass” - this is just one of the accusations aimed at banks following last week’s announcement by the FSA surrounding its pilot review of interest rate swap sales.
The pilot scheme revealed that over 90 per cent of cases failed to meet regulatory requirements. As a result the FSA has ordered banks to conduct a review of all sales of interest rate swaps.
However there are real fears for businesses with a swap of £10m or above after an article by The Independent identified a significant loophole for banks of these sizeable derivatives.
After thorough analysis it has emerged that claims for interest rate swaps will be capped at £10m. This means banks will be exempt from providing redress to those with a swap of £10m or above.
Industry experts predict that the banks’ will need to earmark in the region of £1.5bn to pay financial damages for interest rate swaps mis selling, a mere dip in the ocean when you consider the size of the average swap and the fact that provision for mis sold PPI – where the average claim is approximately £2,500 - has come in around ten times this figure.
Senior Partner, Simon Cottrell, is horrified by the cap:
“We all had high hopes that justice would prevail following the staggering results of the FSA pilot scheme and that the small and medium businesses affected would be adequately compensation. This is clearly not the case.
“In light of this exclusion I reiterate my initial comments – the best way for SMEs to gain justice and secure compensation which adequately addresses the damage of interest rate swaps mis selling is to seek specialist legal representation.”
Content correct at time of publication