Outside the FCA review?

The following Blog is a guest blog by Dr Gary Kendall and makes for interesting reading for anyone in need of guidance to claims outside the FCA IRHP review

Outside the FCA review?

Recently the main focus of the interest rate swap mis-selling scandal has been the progress of the Interest Rate Hedging Product (IRHP) review agreed between the main banks and the Financial Conduct Authority (FCA). But what about those not helped by the FCA scheme? These are individuals or organisations either:

  • excluded from the IRHP review scheme because they are deemed “sophisticated” due to the size of their business or hedging facility with their bank (see http://www.fca.org.uk/static/documents/fsa-irs-flowchart.pdf for details); or
  • unsatisfied with the outcome of their IRHP review with the bank.

In order to seek redress, these organisations are likely to have to have to litigate against the banks.

Financial Services and Markets Act 2000

Section 150 of the Financial Services and Markets Act 2000 (FSMA 2000) provides for a “private person” to seek an action against a bank which has breached its statutory duty in selling an interest rate hedging product. It is this statutory duty which is typically assessed as part of the analysis of the sales process in the FCA IRHP review. This duty is often referred to by reference to the relevant section of the FCA handbook, the Conduct of Business Sourcebook (COBS).

While it is reassuring that this legal avenue is open to some, these are likely to be the minority of those excluded from the FCA IRHP review. For example, in order to seek damages under FSMA 2000, any limited company will have the challenge of demonstrating that they qualify as a “private person”.

Without the comfort of FSMA 2000, a lot of consideration is made for the detail of contract law. While I am not qualified to comment on aspects of the law, I have worked as an expert on several interest rate hedging cases. I not only analyse the facts of a case but also comment on the validity of any statements made as part of the sales process.

Deconstructing the sale

Analysing what was said at the time of sale is crucial to the legal process. It is for this reason that I have been involved in making a film to deconstruct an interest rate swap sale.

We have taken the recording of a typical trade call – the type that were made up and down the country between 2004 and 2009 – and looked at the facts behind each of the statements made by the bank. By combining the bank’s records surrounding the sale with our own analysis of market conditions, we show how important expert analysis is for anyone considering legal action.

The film comes out later this month. Search for #swapsfilm to see the preview.

Dr Gary Kendall is an expert in the modelling and risk management of structured derivatives. He has extensive experience in providing valuation and modelling services to investors, law firms and financial services experts. He can be contacted via www.bankirsa.com.

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