Banks’ interest hedging review scheme to close

In August 2012 the banks announced they had agreed with the FCA to review the sale of all Interest rate Hedging products (IRHPs) sold from 2001. IRHP’s were often included by the Banks as conditions of sanction of lending facilities.

The review followed concerns expressed by the Financial Conduct Authority (FCA)after a pilot review of these products revealed that over 90% had not complied with the sale standards agreed with the FCA. The full review commenced in may 2013 and the FCA have said this week  that the banks have sent a basic redress determination letter to those customers reviewed to date where the sale of the product has been found to be mis-sold.

The FCA have now announced that the final date for new entrants to join the IRHP review scheme will be the 31st march 2015.

The decision to include a business customer in the review process is determined by some arbitrary criteria, eg <£6.5m annual turnover,< £3.2m assets on the balance sheet  . Any business outside the criteria is categorised as ‘sophisticated’ and is consequently not offered a review as part of the above mentioned FCA process.

Dave Jones , a former Commercial banking Director who has been heavily active in seeking recompense for mis-sold SME’s, comments: ’ Many of the businesses categorised as ‘sophisticated’ in this process are as unlikely to have fully understood the implications of these complex products as those  SMEs deemed ‘non sophisticated’  are included in the review process.

If a ‘sophisticated ‘business believes they have a case for redress, then their route is via the complaints process of the bank that sold them the product. In my experience, the banks response times reflect the fact they are directing their energies to those included in the formal review process but that should not discourage any business owner in submitting a complaint where they have an obvious case.

The FCA statistics certainly appear to confirm there is merit in SME’s reviewing the sale of any IRHP sold to them since 2001. For those SMEs included in the review process to date, c75% have been found to be mis-sold with the redress/compensation averaging c£150k per claim.

This leaves the total redress paid out by the banks to date at £1.8b, which includes £365m in respect of consequential losses.

Michael Slater is Head of Litigation at KBL Solicitors in Bolton: ‘As a firm we have been successful in obtaining redress for a number of local businesses, involving most of the High Street banks. Following a successful redress award we then sit down with the client to assess any case for consequential loss – what opportunities/profit were lost by the business during the period they were locked into their excessive funding costs. This is firmly evidence based and requires a structured case to be put forward on behalf of the client’

So with the review scheme scheduled to close at the end of March, it is absolutely essential that SMEs don’t miss the opportunity to be included.

Dave Jones again: ‘The FCA have confirmed that there are still around 2000 eligible businesses that are yet to seek a review of their IRHP. Furthermore, the current review does not include all interest hedging products. For example, there are strong calls from lobby groups for Tailored Business Loans (TBLs) , sold in significant numbers to Clydesdale/Yorkshire bank commercial customers to be included and I’m currently engaged with those banks on several cases.

I would strongly recommend any SME who believe they might have a case for mis-sale to take an initial independent view from someone familiar with the process and, critically, those areas likely to indicate a mis-sale.

Following the March 31st closure date, any complaints in respect of the sale of IRHPs, whether the SME falls into the ‘sophisticated’ or ‘non sophisticated’ category, will need to be directed to the complaints department of the respective bank. By its nature, this is likely to prove a more time consuming route than the current review process.