Other Citywire websites
Stay connected:

View the article online at http://citywire.co.uk/new-model-adviser/article/a655007

Big four banks mis-sold 90% of interest rate swaps

by Alex Steger on Jan 31, 2013 at 08:16

Big four banks mis-sold 90% of interest rate swaps

Britain’s big four high street banks mis-sold over 90% of interest rate swap products, a Financial Services Authority (FSA) report has revealed.

The regulator’s investigation into interest rate hedging product sales by Barclays, HSBCLloyds and RBS found that 90% did not comply with at least one or more regulatory requirement.

The FSA looked at 173 sales to non-sophisticated customers. The watchdog said that a significant proportion of these 173 cases were likely to result in redress being due to the customer.

Following the FSA’s finding Barclays, HSBC, Lloyds and RBS will start the full review of their sales of interest rate hedging products to small businesses. 

The banks have agreed to work on reviewing individual sales and providing redress to customers based on principles outlined in the FSA report, and overseen by independent reviewers.

10 comments so far. Why not have your say?

Julian Stevens

Jan 31, 2013 at 09:57

And what was the FSA doing whilst all this mis-selling was going on? Wielding its hatchets and sledgehammers over the little guys and dreaming up intangible new concepts such as Capacity For Loss (probably over the fifth pint in the Regulators Arms on a Friday afternoon) that hardly anybody seems able to get their head round and which even the FSA itself appears unable (or unwilling) to clarify.

Our network (like all the others, I imagine) been forced to become less and less a support organisation and more and more an intrusive regulatory body. Half the time you can't get through to the people you need to speak to, requests for a call back are ignored, responses to emails seem to take weeks and nobody seems prepared to deal with anything on anybody else's desk.

It's now become almost impossible to obtain a pass on even the simplest of investment cases that, only a few years ago, would have sailed through Business Assessment. All we seem now to be paying for is a second tier of totally excessive regulatory intervention and interference.

It's all becoming impossible.

report this

Short of Understanding

Jan 31, 2013 at 10:24

It seems improbable that 90% can be correct, other than for an errant tickbox somewhere.

Some cases saw an attaching swap that was longer than teh loan term, but in the main the deal offered was not "complex" - but a fixed interest rate loan, issued at a time when inflation was rising above 5% and base rates were being hiked. There was a fear that small companies would not be able to deal with higher interets rates and so if they coudl manage at the fixed level it would be safest.

But the Bank of England decided to go QE crazy and cranked base rates down and the punters started to feel short changed. The acid test here is to ask if they would be complaining of interest rates had risen. The answer is no, and so there is no case to answer.

But the FSA seems hell bent on ruining the economics of the country from the inside out by forcing everyone to get their stake money back every time.

Small wonder the Treasury are reportedly quite worried about this. Well Treasury team, start acting.

report this

John Burchett

Jan 31, 2013 at 11:27

SoU, I couln't disagree more.

The Banks have only ever had individual and corporate self interest. Their client's are there to make the maximum profit for them and they do not have any thought for the consequences which are frequently to ruin peoples lives.

report this

Chris F

Jan 31, 2013 at 11:29

Many of the swap products - and this is specifically *not* fixed rate loans we are talking about - were sold as the loan was only granted if the swap deals were taken.

I have 2 clients who took loans from their banks within the last 12 months to be told this in no uncertain terms. I have been asking about these terms specifically during that time.

Many of these deals have break clauses for the bank, but not for the client. The terms are obscure at best and outrageously one sided at worst (which is, I am guessing, in most cases). Businesses are afraid of upsetting the bank during this time of difficult to obtain credit.

Over the last few years the banks have been "caught with their pants down". They have been doing what they have done in earnest since the late 80's, but there wasn't the wealth creation and easy lending to cover it all up.

The tide went out and they have been caught with no trunks on.

The banks have been known by anyone that has every worked for them as rip off organisations only worried about profit. They drive people into the ground in their relentless pursuit of profit at any cost.

Oddly enough, Steinbeck wrote about this in the Grapes of Wrath. This was set in an era only recently matched by the gap in pay between those doing the work and those taking the money. The FSA are in the latter camp. The banks are corrupt to their very core.

I will leave it to the readers to decide why the FSA refuse to tackle the banks effectively but the path of Mr Sants' career might be the first place to look for a clue.

report this

Keith Cobby

Jan 31, 2013 at 15:34

Banks have no obligation to extend credit to anyone, they are businesses and not an arm of Government. Perhaps people will not be satisfied until we are back in the era of 'Mr Manwaring'.

report this

Dan Rear

Jan 31, 2013 at 16:00

Sounds a good idea to me Keith. And I agree Banks are commercial entities owned by their shareholders, and liable to them to make profits. Shame the shareholders weren't able to take the losses too...

But this is just another example of the Compensation Culture now ruining the country, PPI being the other current example. What next I wonder?

Anytime anyone ever loses money, the good old taxpayer must come to the rescue aided and abetted by the Regulators and Lawyers.

report this

Julian Stevens

Jan 31, 2013 at 16:14

Hang on just a minute ~ there's rather a large difference between an obligation (or none) to extend credit to people and/or businesses but to do so:-

1. by way of a contract that can cause the borrower serious financial harm if interest rates go the wrong way (as has happened to many),

2. without having properly forewarned the borrowers of that risk and

3. (allegedly) having offered these interest rate swap loans on a take it or leave it (i.e. it's one of these or nothing) basis),

cannot be excused simply on the basis that banks are commercial organisations and are thus entitled to make a profit by whatever means. That simply doesn't wash.

report this


Jan 31, 2013 at 16:58


Come now, as a renowned critic of the FSA you cant tell me that you believe the FSA has people competent enough to establish to any realistic degree the level of Swaps missold, unless of course 90 is just an arbitrary number..?

Could it just be that your disliking of banks is greater than your distrust of the FSA...

report this

Keith Cobby

Jan 31, 2013 at 17:14

The problem is the same with all these financial difficulties. People are not really interested and are pleased to 'sign' without reading the documents or understanding their obligations or considering the possibilities. When the tide rises all boats are raised, when it falls..............

report this

Keith Cobby

Jan 31, 2013 at 17:55

..........people complain.

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

Opportunities emerge as production moves back home

As the UK coalition government strives to rebalance the national economy, so called 'reshoring' looks set to play an increasingly important role in economic recovery.

Today's top headlines

A spotlight on Alastair Mundy

Alastair Mundy met Citywire's Daniel Grote at the London Stock Exchange Studios for a detailed interview about the Investec Cautious Managed fund.

More about this article:

Look up the shares

  • Barclays PLC
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • HSBC Bank PLC
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Lloyds Banking Group PLC
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Royal Bank of Scotland Group PLC
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

More from us


Sorry, this link is not
quite ready yet