ICT Views

One Stop Swap Shop

by: (Associate Director, Research and Development) on

It was round about this time last year I wrote a blog about the principle of ‘caveat emptor’ (let the buyer beware). One of the examples I cited was the breaking news that Barclays had been investigated by the UK FSA following a swap mis-selling claim from a business customer.

A swap is a pretty sophisticated financial product - a type of derivative that are widely traded in the international financial markets, not commonly sold to much smaller and/or less sophisticated clients.

Investopedia will give you more details. (Incidentally, I’ve just discovered if you click on the interest rate swap link from the above hyperlink, a pop-up advert for Barclays appears…bit unfortunate that).

Anyway, since it was something I mentioned 11 months ago, I thought I might just provide a little catch up, as the issue has snow-balled recently.


On 31st January, the FSA published a statement on its website addressing the issue of interest rate swaps specifically (referred to by the FSA as interest rate hedging products (IRHPs). It confirmed that the issue wasn’t solely related to Barclays – as HSBC, Lloyds and RBS would also be participating in a “full review”.

The announcement confirmed these banks had agreed to work on reviewing individual sales and providing redress to customers based on principles outlined in the accompanying FSA report, overseen by independent reviewers.

To be fair, I imagine that they had very little choice but agreeing.

The Figures

onestopThe FSA press release discloses some stats on the pilot review which has prompted the wider investigation. The stats are not good:

“The work on the pilot has confirmed the FSA’s initial findings of mis-selling of IRHPs.  The FSA looked at 173 sales to non-sophisticated customers and found that over 90% of the sales did not comply with at least one or more regulatory requirement.  A significant proportion of these 173 cases are likely to result in redress being due to the customer”.

(In the interest of balance, the FSA also noted that it had typically selected more complex cases in the sample and the outcome may not be representative of all IHRP sales). 

The Cost

It was reported in the Telegraph that victims include businesses such as restaurants, shops and electrical retailers. The examples are worth a read, and the costs speculated upon runs into hundreds of thousands of pounds.

So here’s the 64,000 dollar question – how much will it all cost to put right?

Reuters reported as follows (31st Jan):

“So far, the four biggest banks have set relatively small sums aside for compensation. Barclays has taken the highest provision at 450 million pounds, HSBC has set aside about 150 million pounds, RBS  50 million pounds and Lloyds has said the cost won't be material.

Investec's banking analyst Ian Gordon said he expected the overall bill for the industry to be around 1 billion pounds.”

But who knows where it will actually end up ? Even if they receive monetary compensation, the emotional impact on customers will never be removed.

One thing that is for sure is that the Banks continue to take a battering in the media. The reputational damage caused is much more difficult to put a price on, and will take much longer to fix.

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