James Ward, Associate in the Dispute Resolution team at Thomson Snell & Passmore, on the widespread condemnation of banks selling interest rate hedging products
Last June, the FSA announced that major retail banks had agreed to review the sale of Interest Rate Hedging Products (IRHP) after December 1, 2001, to customers considered to be non-sophisticated.
In January 2013, it reported that, based on a pilot study, banks had failed to follow one or more regulatory requirements in more than 90% of cases, confirming that the mis-selling of IRHPs had been rife over the last decade.
But while the announcement of the review and the initial finding that IRHPs have been widely mis-sold will be encouraging news for many businesses, the review process may not offer the panacea that some might be hoping for.
Even if a customer has the defined characteristics of a non-sophisticated customer, if a bank considers a customer had the necessary knowledge and experience to understand the type of product that was being sold, it may still conclude the sale of an IHRP to that customer falls outside the scope of the review.
If this happens, a customer may still end up facing a battle to obtain redress.
Those customers who can expect to have their case reviewed could still face a considerable wait for this to happen – by the FSA’s own admission it may take the major banks as long as 12 months to complete their review.
There is also no guarantee that any review will result in the outcome the customer might be hoping for.
For this, it seems customers are expected to put their trust in the independent reviewers that are to scrutinise the banks’ reviews.
In these circumstances, some customers may instead prefer to seek their own legal advice and initiate a claim straightaway, as many others have done already.