When these complex structured products were first offered to SMEs, few could have foreseen the banking system’s near meltdown just a few years later, and the sustained period of rock bottom interest rates that followed.
For the thousands of small businesses who took out IRHPs, what should have been a hedge against rising interest rates turned into a millstone – as interest rates fell, the charges they paid for their IRHPs rose dramatically. Now the FCA has concluded that many of the high street banks mis-sold these complicated financial instruments to business owners who neither needed nor properly understood them.
For many SMEs who were mis-sold these complex products, redress letters from the banks are now coming through in waves. Although the process started slowly, banks seem to have gotten their act together and cases are now moving through the redress process faster. This is partly because they have been given little choice by the FCA, who has come down hard on the banks for this huge failing to their SME clients. However, it does now seem that the race is on as banks compete against one another to see who can deal with the most cases the quickest.
The FCA states that RBS is in the lead and currently has the highest number of cases currently under consideration – but this is more a reflection of the sheer volume of cases they have to deal with.
Most customers are now beginning to receive the attention they deserve from the banks, however, here are some things to consider regarding any Consequential Loss claim:
· Insolvency – there is currently very little support for companies that have gone under as a result of a SWAP. An added complication is that an insolvency practitioner dealing with a company that was a mis-sold SWAP will not have the same incentive or information as the business owner to chase after consequential losses.
· Not everyone wins – it is important to be realistic about consequential loss claims. For every claim that will succeed there are several that will not. This is due to an array of reasons – the biggest being that often a company cannot prove the connection between mis-selling by the bank and the resulting losses for the company.
Banks may pay fees –it is not uncommon for banks to pre-approve the fees for a forensic accountant’s report so it is worth looking into professional help.
· Time is of the essence – when a customer receives a redress letter asking them to provide details of their consequential losses, they usually have 28-40 days to do this – a very short amount of time. This adds pressure to companies, which can lead to bad decision-making.
Rafi Saville, partner at chartered accountants HW Fisher & Co
