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12 September 2013 / Charles Lazarevic
Issue: 7575 / Categories: Features , Expert Witness , Profession
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A consequential loss

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Could mis-selling in the derivatives market be the PPI equivalent for small businesses? Charles Lazarevic reports

Recently it has been suggested that the banks face claims in excess of £10bn as a result of the alleged mis-selling of complex interest rate derivatives. I have dealt with several cases where the consequences of these “swap” charges have been devastating on the business, with significant losses to the business-owners in some cases.

How has this situation arisen?

The Financial Conduct Authority (FCA), previously the Financial Services Authority, has conducted a review into the interest rate hedging products banks sold to businesses as a means of managing fluctuations in interest rates, also known as interest rate swap agreements (IRSAs). In the review, the FCA identified four broad categories of IRSAs sold: swaps, caps, collars, and “structured collars”. Some of the more complex products, particularly structured collars, speculated on interest rates and resulted in customers paying much more when the interest base rate fell below an agreed level, for no apparent benefit to the business. The FCA decided

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