Interest rate hedging products

Interest rate hedging products were sold to thousands of small and medium-sized enterprises (SMEs), with the intention of reducing risk to interest rate fluctuations.

Subsequently, many SMEs faced substantial exit fees or non-competitive rates to remain in the products, to the point where the costs associated with the products may have threatened business viability. As a result, 11 of the UK’s largest banks have now agreed to compensate businesses mis-sold products including swaps, caps and collars.

They have identified customers who may have been affected and have been inviting them to have their products and arrangements independently reviewed prior to making redress offers, if appropriate.

The banks have agreed to offer customers eight per cent simple interest on top of redress payments, which is intended to compensate them for the cost of being deprived of their money, for example through lost interest or profits.

The Financial Conduct Authority describes this arrangement as a ‘straightforward and fair alternative’ to making claims for consequential losses, the term used to cover indirect losses, such as loss of profits or interest.

However, affected businesses may feel that what the banks are offering is simply not enough and wish to pursue claims for more substantial consequential damages.

At Milsted Langdon, we have been working with businesses affected by interest rate hedging products, including those that were left with no money for investment for much-needed improvements that could have boosted their profitability or have had to sell other assets to maintain cash flow.

As forensic accounting specialists, we can provide invaluable assistance in the formulation of expert evidence in support of claims for consequential loss and enhanced compensation levels.

Some businesses have been excluded from the review process as they are deemed to be “sophisticated”. This occurs where the total value of their interest rate hedging products was £10 million or more. These businesses have no option but to go to court if they wish to make a case that they are due compensation and these may also benefit from specialist forensic accounting advice.

Affected businesses are advised to contact us at as early a stage a possible for advice, so that they can make informed decisions going forward.