The review of the sale of interest rate hedging products (IRHPs) announced by the FSA in 2012 was inevitably never going to be a complete answer to the mass mis-selling of these products over the last decade.
Despite a pilot study revealing last year that banks had failed to follow regulatory guidelines in over 90% of cases, only customers deemed to be “non-sophisticated” can expect to have their case reviewed.
Yet customers outside of this definition may have been just as badly affected by the consequences of aggressive selling techniques and poor advice and recommendations from their bank.
Statistics released by the FCA in January 2014 illustrate that over one-third of customers sold an IRHP since 2001 have been classified as “sophisticated”, meaning they will not in fact have their case reviewed. Many will have been waiting patiently over the last 18 months to learn whether their cases will be reviewed, but will now be finding out that they have to take matters into their own hands by initiating a claim against their bank themselves after all.
But inclusion within the review does not by itself bring a guarantee of redress either. Whilst offers of redress have been made in 82% of cases where banks have been found to have been non-compliant so far, there are instances where banks have decided that no redress is necessary, presumably because their actions made no difference to what the customer would have done if the rules had been followed.
Even where redress has been offered, the acceptance rate is noticeably higher where banks are agreeing to tear up agreements and refund all payments made. Customers who it is thought would have chosen an alternative product, e.g. a cap or a collar rather than a swap, appear much less enthusiastic to accept the offers that have been made to them.
None of this should really come as a surprise. Since the financial crisis, public trust and confidence in banks has reached an all-time low, and it is inevitable that some customers will feel that their case has not been properly considered, or feel that redress offered falls short of what is fair and reasonable.
The true test of the banks’ attitude towards the mis-selling of IRHPs will probably come in the months ahead when they consider claims and complaints brought by “sophisticated” customers that may have been put on hold pending the review.
James Ward, Thomson Snell and Passmore