Interest rate hedging products - Financial Conduct Authority

Interest rate hedging products

In 2012, we identified failings in the way that some banks sold structured collars, swaps, simple collars and cap products, which we collectively refer to as IRHPs. The banks involved agreed to review their sales of IRHPs1 made to unsophisticated customers2 since 2001. The full review started in May 2013. The banks have nearly completed their reviews, having sent a redress determination letter to 18,100 businesses and paid over £2 billion in redress, including £450 million to deal with consequential losses.

The nine banks that are reviewing their sales of IRHPs are:

Allied Irish Bank (UK) Bank of Ireland Barclays
Clydesdale & Yorkshire Banks Co-operative Bank HSBC
Lloyds Banking Group Royal Bank of Scotland Santander UK


The voluntary agreements establishing the IRHP scheme are supported by independent reviewers appointed under s.166 of the Financial Services and Markets Act 2000. Every case is overseen and verified by an independent reviewer.

Read the agreements with the banks, along with our instructions to appoint the independent reviewers.  

The banks sought to identify eligible customers who were sold structured collars, swaps, or simple collars and invited them into the review. All such claims have now been determined and offers of basic redress made where appropriate. Of the 18,000 customers identified, 16,000 chose to join the review, and 2,000 have chosen not to participate. At 89%, customer engagement has been high. 

Customers who purchased cap products were contacted by the banks and advised that these sales would only be included in the review if they proactively complain to their bank and asked customers to do so by 31 March 2015. Around 2,000 out of 7,000 customers have complained to their banks about their cap products.

Customers who did not join the IRHP review before 31 March 2015 still have the following options (subject to time limits for making a complaint or bringing a claim):

  1. To complain about the sale of their IRHPs through the banks’ usual complaints handling processes;
  2. To refer their complaint to the Financial Ombudsman Service. Generally customers who are private individuals can bring complaints to the Financial Ombudsman Service, as can businesses that are 'micro enterprises' (an EU term covering smaller businesses) as long as they have an annual turnover of less than two million euros, or approximately 1.59 million pounds, and fewer than ten employees;
  3. To pursue their case through the courts.

The review so far

All nine banks have now completed their sales reviews and have delivered redress letters to all but a handful of these customers.

The banks have sent 18,100 redress determinations to customers, 14,600 of which include a cash redress offer, and 3,500 confirm that the IRHP sale complied with our rules or that the customer suffered no loss.

To date, around 13,200 customers have accepted a redress offer and £2 billion is being paid out, including more than £450 million to cover consequential losses. This means that, so far, around 90% of offers have been accepted.

In addition to the £2 billion of redress payable to customers, the banks have set aside money to cover the costs of having to terminate customers’ IRHPs early (the banks bear the cost of IRHP payments that customers would have made in the future), the costs of employing more than 3,000 people to carry out the review exercise, and the costs of engaging independent reviewers to look at every case.

The charts and tables below summarise the banks’ progress and the position at the end of September 2015:

Next steps

In the coming months, the banks expect to deal with all remaining cases, including claims for consequential losses and customers who have challenged their redress offers.

For this reason, the banks have started writing to customers who have received a final redress offer but who have not yet accepted it.  These customers will receive a reminder of their offers, and will then be given a reasonable time (at least 3 months) to accept the offer.

The redress scheme was designed to deliver fair and reasonable redress to customers as quickly as possible, without the need to spend time and money building and arguing cases for themselves.  However, the IRHP Review does not remove or replace customers' rights to go to the Financial Ombudsman Service or through the courts. 

Should they decide not to accept the bank’s offer, customers who are eligible3 can of course refer their complaint to the Ombudsman, or pursue their case through the courts (subject to time limits for making a complaint or bringing a claim).

We will continue to provide close oversight of the IRHP review and will provide quarterly updates, including information about the progress of consequential loss claims.

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1For these purposes, we mean IRHPs that are derivatives which are separate to a lending arrangement and are for the purpose of managing interest rate fluctuations.

2That is, customers classified under our rules as either ‘private customers’ (in relation to sales made on or before 31 October 2007) or ‘retail clients’ (for sales made on or after 1 November 2007), and assessed as being eligible for the review under the ‘sophistication test’.

3Private individuals can bring complaints to the Ombudsman, as can businesses that are “micro enterprises” (an EU term covering smaller businesses) as long as they have an annual turnover of less than two million euros and fewer than ten employees.