Swaps compensation update

The recent Financial Conduct Authority update on compensation payments for mis-selling of interest rates hedging products (June 2014) shows that 2,400 claims for consequential losses have been submitted to date. Of these, only 600 have had their assessment completed and over £1.2 billion has been paid out. However, the update suggests that just £1 million has been paid out for the consequential loss element to the end of June 2014. A great deal has been made of the fact that this suggests that the average pay-out over and above the 8% offered under the redress scheme has been just £600 per claim.

There has been criticism of the way in which claims have been handled, with similar claims being treated inconsistently, with some claimants being offered alternative products, while others have not. Also, it has been suggested that the independent reviewers employed by the banks, rather than acting independently and reaching redress decisions, have taken a passive role.

Remarkably over 2,200 customers have not claimed compensation, despite being notified by the banks that they are eligible to claim. Limitation law may soon restrict these claims, so do not delay.

The banks are facing a barrage of litigation. RBS is said to have sold many swaps and collars to SMEs. For example, in RBS’s most recent half-year results, the ‘litigation, investigations and reviews’ section ran to 18 pages, or 19,900 words, and outlined 29 separate issues the bank is dealing with. This one bank had set aside a further £100 million in the first half year towards redress payment for interest rate hedging products alone.

In my experience, the banks are taking a very tough attitude towards the claims. No doubt there are many poorly prepared and inflated claims. Also, there is a danger that inflated claims are being relegated to the 'too difficult' pile. It seems that the low pay-outs to date are only the small claims. The larger claims will take time to process so it is likely that we will see  larger pay-outs in due course.

Insolvency practitioners are grappling with these claims for insolvency companies as well, raising a whole separate set of issues for them. The banks have agreed that, so far as possible, they will treat companies that have been dissolved consistently with all other customers.

Moore Stephens is assisting companies and individuals with compiling their consequential loss claims. A number of cases have had to move from the redress scheme into the court process. The firm has prepared CPR Part 35-compliant reports for use in legal proceedings in several of these cases.

Redress for embedded swaps has still to be resolved.


Merryck Lowe

Related links

Dispute analysis & Investigations