Interest Rate Hedging Product Dispute Heading to Court
The Financial Conduct Authority (FCA), Barclays and KPMG are expected to appear in court this week to comment on claim compensation awarded to victims of mis-sold interest rate hedging products was unfair.
The one-day hearing is expected to take place on Friday 24th April, and could potentially result pave the way for a full judicial review that could overhaul the compensation scheme – which has reportedly paid £1.8billion to over 11,000 companies.
The case has been brought by Holmcroft Properties Ltd, which is an Isle of Man firm that received £500,000 but was not compensated for the alleged loss of various properties as a result of the swap ballooning as interest rates dropped.
Represented by the Mischon de Reya, an international law firm, Holmcroft is challenging Barclay’s compensation scheme, which was administered by KPMG, who acted as an independent reviewer. The FCA will attend court, as the public body is the regulator that oversaw the redress schemes that were set up by banks in 2012. The watchdog asked for nine institutions to review the sales of their interest rate hedging products, which were sold to businesses to protect them from being affected by changes to interest rates.
According to the FCA, an estimated £365m has been paid by banks to cover consequential losses. However, politicians on the Treasury Select Committee have since criticised the compensation scheme for exclusions and delays that have unfortunately resulted in hundred of businesses being dissatisfied.
Andrew Tyrie, who chaired the committee, recently commented: “Firms feel they have been doubly let down: first by mis-selling and now by the redress process. They may have a point. The Committee remains seriously concerned about the scheme’s effectiveness and lack of transparency.”
Those who bought swaps worth over £10m, or businesses that made more that £6.5m in yearly revenues, were excluded from the redress programme, as they were viewed as sophisticated enough to understand the product they bought.
Alison Loveday, managing partner at Berg, stated: “If you happen to be in the narrow band of companies that didn’t have any consequential losses and got a full tear-up (of their swap contract), then the process has worked for you. If you were deemed sophisticated, or had an alternative product imposed, you’re going to be disappointed.”
Berg is representing various companies who are now challenging their compensation award. The company is acting for Michael Hocking, who is the former owner of London and West Country Estates, and who is fighting to recover losses that are a result of the swap product taken out with RBS in 2008 against a £57 million loan. Unfortunately, his company went into administration in 2012. It is expected that a case management conference will take place this week, which may determine in the dispute will go to trial.