The Financial Services Authority today released its findings following the pilot review of the sale of interest rate hedging products. The pilot reviewed 173 sales to “non-sophisticated customers” of Barclays, HSBC, Lloyds and RBS. Each bank has appointed an independent reviewer who interviewed customers in what was promised to be a “customer-centric” process. Broadly speaking the FSA pilot findings are in line with our expectations and the clarification of certain aspects of the review process and the way in which redress is to be calculated is helpful. The pilot has found widespread misselling and that over 90% of sales did not comply with FSA regulatory requirements. In particular it was found that a high proportion of customers were given inadequate information about the scale of the break costs. The FSA has changed slightly its eligibility criteria, so as to include “non-sophisticated” customers who were previously excluded because, for example, they had a large seasonal workforce, and so as to exclude customers who were likely to have had understood the risks and to have had the resources to seek advice; this might include subsidiaries of large groups. There remains uncertainty around eligibility with customers now waiting to hear whether the sale of their product will be reviewed or not. The concern for most customers will be the length of time the process is expected to take; we have doubts, given the number of cases, of the ability of banks to conclude the review within 6-12 months. It is likely that it will take far longer for customers actually to receive their redress. The priority for many businesses who are struggling financially will be to obtain a moratorium on payments, which is still being determined on a case by case basis. Customers need to make sure, pending the outcome of the review, that they preserve their position in relation to possible legal claims, as the FSA process does not stop the running of the 6 year limitation period- that is the time within which court claims must be brought. Most products were purchased in 2006 – 2008, which means that time is of the essence.

Click here to see further Claire’s comments on the review.

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