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June 2012
Due Diligence and The Sale Of Goods
May 2012
Employee Incentives and Share Option Schemes
April 2012
Hotels
March 2012
Marketing
February 2012
International Services
January 2012
Contract Law
December 2011
November 2011
Recruitment
October 2011
Intellectual Property Update
September 2011
Commercial Disputes
July/August 2011
Holidays, Gym Memberships, Nights Out
June 2011
Social Media and Comparative Advertising
Visit Our Archive for previous newsletters covering Hospitality, Recruitment, Intellectual Property, Food & Drink, Commercial Property, Employment, Hotels, Restaurants, Start Ups and many other topics |
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Quick Links
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Visit Our Archive for previous newsletters covering Hospitality, Recruitment, Intellectual Property, Food & Drink, Commercial Property, Employment, Hotels, Restaurants, Start Ups and many other topics
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Find Previous Featured Articles | |
June 2012
Due Diligence and The Sale Of Goods
May 2012
Employee Incentives and Share Option Schemes
April 2012
Hotels
March 2012
Marketing
February 2012
International Services
January 2012
Contract Law
December 2011
November 2011
Recruitment
October 2011
Intellectual Property Update
September 2011
Commercial Disputes
July/August 2011
Holidays, Gym Memberships, Nights Out
June 2011
Social Media and Comparative Advertising
Visit Our Archive for previous newsletters covering Hospitality, Recruitment, Intellectual Property, Food & Drink, Commercial Property, Employment, Hotels, Restaurants, Start Ups and many other topics |
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Quick Links
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Visit Our Archive for previous newsletters covering Hospitality, Recruitment, Intellectual Property, Food & Drink, Commercial Property, Employment, Hotels, Restaurants, Start Ups and many other topics
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Dear Subscriber,
Welcome to our July newsletter.
The last week of June saw some of the world's largest banks being heavily scrutinised and placed under the spotlight once again, suggesting that there are still serious cracks in our banking industry. Barclays faced severe criticism and hefty financial penalties after admitting that its traders had attempted to manipulate LIBOR rates. Whilst the investigation continues on a global scale, Barclays have agreed to pay a record £290 million fine to regulators in the UK and USA.
In the meantime the FSA was also busying itself with alleged misselling of interest rate hedging products. Barclays, Lloyds, HSBC and RBS have all admitted to misselling interest rate hedges to small and medium sized business customers after an FSA review found serious failings in the way some of these products were marketed to its customers.
In light of these recent events, this month our newsletter will focus on the ongoing banking crisis and includes the following articles:
- The FSA's review on the misselling of interest rate hedging products;
- Fortune Law's guide for companies affected by the FSA's review; and
- Light at the end of the tunnel? Why Canadian banks are setting banking benchmarks.
If you have any queries or need advice in relation to any of the matters set out in this newsletter or any other legal issues, do not hesitate to call us on 0207 440 2540 or e-mail us at info@fortunelaw.com. We are always happy to help.
Further information
Fortune Law provides businesses with "a one stop shop" service dealing with commercial property, commercial litigation, employment, corporate and commercial law. We can also provide a dedicated service for international clients and we specialise in the hospitality sector.
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Shainul Kassam
Fortune Law Solicitors |
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The FSA's review On The Misselling Of Interest Rate Hedging Products
Since 2010 an increasing number of complaints have been raised against banks over the misselling of interest rate hedging products. The FSA has conducted a review in response to these complaints and particularly into the types of products sold by the four largest banks and the way in which they were sold to small and medium sized businesses (SMEs). Last month, the FSA announced that it has found serious failings and sufficient evidence of poor practices to justify redress for some customers.
Background
Since 2001 banks have sold approximately 28,000 interest rate protection products to customers (Financial Services Authority, FSA Agrees Settlement with Four Banks over Interest Rate Hedging Products, 29 June 2012).
Certain sectors particularly affected include hotels, bars and restaurants, care homes, day care nurseries, property developers, publicans, shop and franchise owners.
The products range in complexity from comparatively simple "caps" through to the more complex "structured collars". The main types of products sold to customers include:
- Swaps which enable a customer to fix their interest rate by swapping in effect a fixed rate of interest for a floating rate or vice versa;
- Caps which place an upper limit on any interest rate rises;
- Collars which enable a customer to limit interest rate fluctuations to within a simple range; and
- Structured Collars which enable a customer to limit interest rate fluctuations to within a specified range (with a lower ceiling than a simple collar) but involving more complex arrangements if the interest rate falls below the bottom of the range.
These products have generally been marketed to customers who have a business loan in place with their bank. If properly sold, in the right circumstances and to the right customers, they could protect customers against the risk of interest rate movements by providing greater certainty over future loan repayments. Indeed this has been their main attraction.
However, primarily as a result of the economic downturn, matters have transpired contrary to customer intentions and understanding. Many customers have found themselves in a position where they are in fact paying much more as base interest rates have fallen to their current, sustained, historic lows. In addition, poor or nonexistent advice on termination has left customers facing prohibitively high exit costs.
FSA's review and findings
In light of the many complaints received from customers, the FSA conducted a review into the sale of these products since 2001 to SMEs by four of the largest banks, namely Barclays, HSBC, Lloyds and RBS, since 2001.
On 29 June 2012, the FSA published its findings and announced that there have been serious failings. In particular it found that here has been:
- Inappropriate selling of complex interest rate hedging products such as structured collars. As this type of product requires a degree of interest rate speculation and fine balanced judgment on the part of customers its sale to "non-sophisticated" customers such as SMEs could be deemed inappropriate for their needs;
- Evidence of poor sales practices including insufficient disclosure of exit costs, failure to ascertain customers' understanding of the risk involved, non advised sales straying into advice territory and "over hedging" (i.e. where the amounts and/or duration did not match the underlying loans); and
- Rewards and incentives to bank staff exacerbating these practices.
Next steps
The FSA have agreed a settlement with the four banks it has investigated. Accordingly, these banks will now be required to:
- Provide redress on the sale of structured collars to 'non sophisticated' customers made on or after 1 December 2001;
- Review sales of other interest rate hedging products (except caps or structured collars) for 'non-sophisticated' customers on or after 1 December 2001; and
- Review the sale of a cap if a complaint is made by a 'non-sophisticated' customer.
Each situation will need to be reviewed on a case by case basis and where customers who are owed redress, this will be determined on the basis of what is fair and reasonable. The remedy could involve a mixture of cancelling or replacing existing products with alternative products, and partial or full refunds of the costs of those products.
It is the FSA's intention to contact other banks who have sold interest rate hedging products with a view to determining whether similar practices have occurred and, if so, agreeing a similar action.
Please note that this article should be read in conjunction with Fortune Law's Guide for Companies Affected by the FSA Review below.
If you are an SME and have purchased an interest rate hedging product you may be entitled to redress. Fortune Law has the necessary expertise and experience to advise you on your position. For further information, please get in touch by telephone on 020 7440 2540 or by e-mail at enquiries@fortunelaw.com
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Fortune Law's Guide For Companies Mis-Sold Hedging Products
The FSA Review
 Having completed its recent review, the Financial Services Authority (FSA) recently announced that it has found "serious failings" in the sale of interest rate hedging products to SMEs. The FSA expressed particular concern about the inappropriate selling of complex varieties of interest rate hedging products (structured collars) as well as poor sales practices.
In response to this, Barclays Bank Plc (Barclays), HSBC Bank Plc (HSBC), Lloyds Banking Group (Lloyds) and the Royal Bank of Scotland and National Westminster Bank (RBS) have all agreed to provide fair and appropriate redress where misselling has occurred.
What This Means For SMEs
If you are an SME who has purchased structured collars from these banks, you may be entitled to some form of redress. Here is a guide for what will happen next:
- The bank should contact you to explain whether you fall within the scope of the review (i.e. whether you are considered sophisticated or not);
- If you do fall within the scope of the review you may need to respond to requests for further information from your bank;
- The bank will then propose a fair and reasonable redress, which is reviewed and agreed by the independent reviewer; and
- Once you agree the redress proposal, you will be issued with a final redress proposal.
If you are an SME who bought other interest rate hedging products (except caps or structured collars) from these banks, here is what should happen next:
- You should be contacted by your bank to explain whether or not you are considered non sophisticated;
- If you fall within the scope of the review (i.e. determined to be non sophisticated) your bank should ask you whether you want your sale to be reviewed;
- If you do wish for your sale to be reviewed, you may need to respond to requests for further information by your bank;
- Where it is appropriate in the individual circumstances, the bank will propose fair and reasonable redress on a case by case basis, which is reviewed and agreed by the independent reviewer; and
- Once the customer agrees the redress proposal, they will be issued with a final redress proposal
If you are an SME who purchased a cap, these products are not included in the scope of the review unless you are a non sophisticated customer and complain to your bank during the course of the independent review. Where you do complain, your complaint will be considered in the same way as the other interest rate hedging products (except structured collars) category.
However, if you complain after the independent review, your complaint will be dealt with in accordance with the bank's usual complaint procedures.Where you are not satisfied with the outcome of the review you can refer your complaint to the Financial Ombudsman Service. This is however subject to meeting the eligibility criteria.
Do you qualify for redress?
In order to qualify for any form of redress you need to be a non sophisticated customer. A sophisticated customer has been defined by the FSA as: in the financial year during which the sale was concluded, a customer who met at least two of the following:
(i) a turnover of more than £6.5 million; or
(ii) a balance sheet total of more than £3.26 million; or
(iii) more than 50 employees
Alternatively, you are able to demonstrate that, at the time of the sale, you had the necessary experience and knowledge to understand the service to be provided and the type of product or transaction envisaged, including their complexity and risks involved.
If you fall within the definition of a sophisticated customer you will not be considered as part of this review. If you are a sophisticated customer, any complaints made will be dealt with in accordance with the bank's normal complaints procedure.
Remedies
It is clear that not all customers will be entitled to redress. For those who are, the exact remedies awarded will vary from customer to customer, but could include cancelling or replacing existing products and partial or full refunds of the costs of the products.
How we can help?
Interest rate hedging products can be a complex subject matter. Here at Fortune Law we have the relevant knowledge and expertise to help you with any potential claim you may have. We endeavour to make the process as stress free as possible for our clients by advising you on what is most appropriate for your case and how best and cost effectively you can achieve your objectives.
We can help:
- Review your case and lodge a complaint with the bank if you have not already heard from them;
- Determine whether you would be considered a non sophisticated customer;
- Negotiate an appropriate redress package for you to ensure you get what would be fair and reasonable;
- Liaise with the bank and the Financial Ombudsman Service;
- Issue legal proceedings and assist you with your claim should the need arise
Please note that this article should be read in conjunction with our article on the FSA's Review on the Misselling of Interest Rate Hedging Products.
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Light At The End Of The Tunnel? Why Canadian Banks Are Setting Banking Benchmarks
 Banks in Canada continue to perform well despite the ongoing turmoil in Europe over rising debt levels and the economic uncertainty in the United States of America. Many banks have recently reported record profits since the 2008 global financial crisis, demonstrating the fact that Canadian banks are currently amongst the most stable in the world (see PricewaterhouseCoopers LLP, Canadian Banks 2012: Perspectives on the Canadian Banking Industry).
With the banking crisis in the UK going from bad to worse, the Canadian banking industry certainly sets a good example of how things could be done.
Canadian banks, like so many other banks around the world, needed a great deal of financial support during the global banking crisis of 2008. However, they seem to have recovered well in comparison to banks elsewhere according to a survey conducted by Bloomberg Markets.
Bloomberg Markets annual survey of the world's strongest financial institutions shows Canadian banks dominating the list for this year, with 4 of Canada's banks in the top 10. Canadian Imperial Bank of Commerce (CIBC) was the highest ranked Canadian bank on the list at third place, the second consecutive year the bank has been recognised among the world's strongest banks. Toronto Dominion Bank (TD Bank), National Bank of Canada and the Royal Bank of Canada (RBC) ranked fourth, fifth and sixth respectively. Other Canadian banks which made the list included the Bank of Nova Scotia which ranked eighteenth and the Bank of Montreal which was placed at twenty second (Bloomberg Markets Magazine, The World's Strongest Banks, 2012).
Bloomberg accords the strength of the Canadian banks to the country's conservative lending culture, strict regulatory oversight under a single supervisor and the requirement for them to hold a higher level of capital than demanded by international standards.
With the Eurozone and UK banking industry looking more and more unstable every day, investing in strong markets is becoming increasingly important. The strength and stability of the Canadian banking industry gives confidence to global investors looking at developed market economies for investment opportunities. With a strong financial industry and stable economy, Canada is certainly showing light at the end of the tunnel and proving itself to be a strong candidate for foreign investment.
Fortune Law is now able to offer a range of business and litigation legal services to clients who already have vested interests in Canada and to those who are interested in Canadian investment for the future. Zahra Marani, an Ontario licensed Barrister and Solicitor as well as a UK qualified Solicitor, is based in our London offices for the most part, but also regularly travels back to Canada so as to make UK and Canadian services readily accessible to clients on both sides of the Atlantic. Please click here for more details.
If you need advice or assistance relating to a potential investment in Canada or if you are considering setting up a business or a cross border joint venture then please don't hesitate to get in touch with us at enquiries@fortunelaw.com or call us on 020 7440 2540
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