SWAPS Mis-selling

Many businesses will have been following the recent review carried out by the FSA relating to interest rate hedging products.

As a result of the findings of the FSA, attention has immediately been turned to the redress that clients may be able to seek as a result of potential mis-selling of Swaps.

One of the consequences of the Big Bang in 1987, and the subsequent development of the City into the world’s leading financial centre, has been the proliferation of ever more complicated financial products. As we now all know, products became so complicated that Banks, IFAs and other advisers simply failed to understand what they were selling.

Split Capital Trusts, Precipice Bonds, PPI and derivatives, such as Credit Default Swaps, are just a few of the complicated ways that banks and other financial institutions convinced their clients to part with their money.

The simple truth is that at the bottom of all financial mis-selling matters, there is usually a failure by the bank or IFA to assess the real, underlying or other risks inherent in a recommended investment. An adviser’s primary duty is to take reasonable steps to ensure that a recommended financial product adequately meets the client’s financial needs and circumstances. If the product is unsuitable by reason of excessive risk, illiquidity or some other incompatibility with a client’s requirements, then it is almost inevitable that compensation for the investment loss will be due.

The starting point in every case is a sound and detailed analysis of the true nature and structure of the recommended product. Where it can be established that the inherent risks fall outside the risk profile that the client has been given, or ought to have been given, there is the basis for a claim in which all the investment losses flowing from the flawed advice can be recovered.

Although the FSA ruling is restricted, some 28,000 interest-rate products were sold by the Banks since 2001 and, whilst some have described the products as broadly positive, the FSA’s conclusions have underlined the notoriety that interest rate Swaps have now gained worldwide.

Whilst the recent scandal relating to Libor seems to be a separate matter from Swaps, they are, in fact, inter-related. This has been apparent from a class action filed in the US alleging that banks pressured clients into buying overly complex Swaps linked to Libor, a rate that the claimants in that case allege the banks were manipulating for their own benefit.

We are already hearing of businesses complaining of high pressure tactics and large fees to exit Swaps and claims for losses caused by Swaps mis-selling are certainly set to increase over the coming months.

At Hamlins, we can provide the essential initial legal and financial analysis to translate the technical data into the basis of a legal claim.


Antony Perlmutter
020 7355 6040