Business Solicitors Suffolk – Hedging agreement uncertainty

‘The High Street Banks’ battle to avoid or lessen the prospect of millions of pounds of damages and compensation to their customers over the sale of complex hedging products has met with varying degrees of success over the last three months.

In October the Financial Services Ombudsman – no doubt buoyed by declarations from the Financial Services Authority and an apparent agreement by the banks to set up compensation schemes in relation to hedging products – overturned initial decisions by the adjudicator to recommend compensation in two cases involving classic examples of bank miss-selling in or around 2007/2008.

In both these cases the Ombudsman recommended an outline of compensation based on a comparison between these complex derivative hedging products and a simple fixed rate loan from the bank.

Significantly in both cases the customers involved were very clearly private customers, the one being a small business landlord and the other a small family hotelier.  The Financial Ombudsman published both these decisions in October.  We are aware of a number of farmers who would fall into the same category.

This was followed shortly afterwards last month by a decision in the High Court in Manchester where the claimant developers failed against The Royal Bank of Scotland Plc in a claim relating to a swap agreement in 2005.

It will yet be seen whether this case results in an appeal but its facts are rather different to the usual complaint by customers regarding the banks’ swap or hedging agreements in that it relates back to 2004/2005 when the banks’ aggressive promotion of these financial products was in its infancy and it would appear that their staff were more concerned with explaining the products carefully.  It also appears that the complainants in the case were a little more sophisticated than the standard SME owner later targeted.

Whilst there was a big political backlash against the banks in the summer of last year, which has undoubtedly influenced the subsequent actions of the FSA and Financial Ombudsman, it is rumoured that this latest decision from the High Court has encouraged the High Street Banks to attack the head of the new FCA (which is being created out of the FSA to administer this sort of product) as a “persecutor” of the UK high street banks.  Whilst such a plea is unlikely to garner much public sympathy it remains to be seen what influence the government may bring to bear.

Meanwhile the FSA is due to announce later this week the result of a pilot programme put in place following the announcement last June of the FSA’s joint scheme with the high street banks to “provide a swift solution for customers” for “appropriate redress where miss-selling has occurred”.’

Dermott Thomas is a business solicitor specialising in dispute resolution at Barker Gotelee, solicitors in Suffolk.

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