The Financial Conduct Authority (FCA ) has set a deadline of 31 March 2015 by which time those who may be eligible for redress for mis-sold financial hedging products under the Interest Rate Hedging Products (IRHP) scheme must register their intention to be included within the review process.
As at December 2014 only £1.8bn of the £4.4bn set a side by the banks to compensate those who were mis-sold financial hedging products had been paid. There is no obligation to inform companies over audit threshold of the potential redress and with the 31 March 2015 deadline fast approaching thousands could miss out unless they file a complaint with their bank now.
The mis-sold products
The products in question are Interest Rate Hedging Products (IRHP), which consist of Swaps, Caps and Collars. It is entirely possible that a business may not have been aware that they had been sold this product and with bank employees heavily incentivised to sell, their use was widespread.
The FCA ruled that a number of banks were guilty of mis-selling and should look to redress customers the original overpayment along with either 8% simple interest or any consequential losses or opportunity losses suffered by the business as a result of being deprived this cash as working capital. In some cases the consequential losses to the company and its shareholders may have been substantial.
Which companies have not been contacted directly?
The banks were only obliged to contact ‘non-sophisticated’ customers directly. The definition of sophisticated means that the following customers were not included within the review process;
- Companies or Groups which do not meet the CA 06 definition of audit exempt;
- Any customers who were using an interest cap
If you fall into the above categories with the product purchased between 2001-2010 you must make an original claim by 31 March 2015 to be included within the process.
The characteristics of the derivatives mean that a company could have been under the impression that a fixed rate loan had been entered into whereas the reality was that a variable facility was in use. This meant that when interest rates fell the payments remained at a similar level due to the excess now being paid to service the derivative.
What to do next?
If you entered into an agreement with any of the relevant banks between 2001 – 2010 then it would be advisable to review your documentation for key phrases such as Interest Rate Hedging Product (IRHP), Interest Swap, Interest Cap, Structured Interest Collar, Interest Collars or Derivatives.
The aforementioned banks are;
- Lloyds Banking Group
- Co-operative Bank
- Allied Irish Bank (UK)
- Bank of Ireland
As mentioned previously the claim must be in process by 31 March 2015.
You may consider engaging the services of a forensic accountant to assess if 8% is adequate redress or whether you may have a larger claim for the consequential loss (the opportunity cost) of making these premium payments.
Furthermore the redress system has not proved as simple as perhaps the FCA intended. Many banks have offered customers new products as an alternative to cash. It is important that companies consider their options carefully and consider obtaining objective advice. Companies not claiming by 31 March may still have the option to try the Bank’s normal complaint process or to consider potentially costly litigation subject to the usual deadlines for civil claims.