An investigation by the Financial Services Authority has said ‘significant levels’ of complex interest rate swap products were missold to small businesses, including farms.
Four of the biggest banks have agreed to compensate some customers who bought complex interest rate swaps after a FSA investigation found nine out of 10 were missold.
Interest rate hedging products (IRHPs), also known as interest rate swaps, were sold to thousands of small businesses in the UK, including many farmers.
Aiming to mitigate against rising interest rates, many small business owners took on the products, but when rates fell they were left out of pocket.
The FSA oversaw investigations by Barclays, HSBC, Lloyds and RBS which found that, of the 173 sales in the pilot review, 90% did not fully comply with regulations.
The banks will now launch a full review of all their IRHP sales.
“This marks significant progress in our review of these products,” said Martin Wheatley, chief executive designate of the Financial Conduct Authority.
“We believe that our work will ensure a fair and reasonable outcome for small and unsophisticated businesses.
“Small businesses will now see the result of the review as the banks look at their individual cases. Where redress is due, businesses will be put back into the position they should have been without the missale.
“But it is important to remember that this review is firmly focused on the particular circumstances of each sale. These will determine whether there were failings in the sales process and, if so, whether redress is due.”
Farmers Weekly has spoken to a couple whose farm business has been devastated by an interest rate swap sold to them in 2008 which has snowballed to consume all their assets.
“The business went backwards very quickly as we struggled to meet these payments, with a build up of creditors and corner cutting, and a complete stop to any vital improvements,” they said.
The couple were unable to put a monetary value on what they had lost but it is thought to be hundreds of thousands of pounds.
However, the damage extended far beyond the business, deeply affecting not only their lives but the lives of their children and other family.
“It is difficult to convey the ‘grinding’ down effect that the burden of the payment under the IRHP has on a you and the continuous presence in the back of your mind which never allows you to completely relax.
“We’re hanging in by the skin of our teeth. Some days you wonder what the point is.”
Solicitor Chris Hale from Rohrer & Co said the FSA rules mean farmers may be able to claim for consequential losses, providing they are reasonable and flow from the original breach.
“The debate is still to be had on what constitutes consequential losses. However, there is potential for significant redress if customers can establish loss, especially for farmers who may have had to sell machinery or property.”
Mr Hale advises farmers to initially raise the issue with their banks if they believe they have been a victim of misselling, as the banks should be handling the process and there may be no need to get a lawyer involved.
However, the guidelines do allow claims to be handled by a solicitor. Mr Hale advises customers to do their research and speak to a solicitor with a good reputation in this area.
Allied Irish Bank (UK), Bank of Ireland, Clydesdale and Yorkshire banks, Co-Operative Bank, and Santander UK will find out by 14 February if they will need to launch reviews.