IRHP FAQs - Financial Conduct Authority

Interest rate hedging product review - FAQs

In addition to the information on the review and redress determination process, and on consequential loss claims, frequently asked questions have been grouped by topics below. Information on the progress of the review is updated on a monthly basis. Please browse through these questions to find out more information about the IRHP review scheme.

If your business is in financial difficulty, consult this page for information on how this affects the review of your interest rate hedging product.

If your question is not answered here, please do not hesitate to contact us.  

Sophisticated / Non-sophisticated customers

Q1: What do you mean by ‘non-sophisticated’ customers?

Answer:

The purpose of the sophistication test was to identify those customers likely to be sophisticated.  The threshold criteria which form part of the sophistication test are a necessary means by which the FCA has sought to establish a workable scheme to enable the banks readily to identify customers within the scope of the scheme and to enable redress, where appropriate, to be provided quickly in order to secure an appropriate degree of protection for consumers. 

The sophistication criteria are therefore a proxy for financial sophistication and were chosen on the basis that small businesses and businesses entering into transactions below a certain size were less likely to have understood the risks associated with IRHPs, and were are also less likely to have had the necessary resources to obtain independent expert advice before purchasing the product and, where appropriate, to bring legal proceedings on their own behalf.

See how your business would be classified for the purposes of this review.

Q2: Why did we make changes to the criteria?

Answer:

The pilot enabled us to consider the principles that should govern the review.  As a result, we revised the eligibility criteria taken from the Companies Act 2006 to ensure that the review is focused on those small businesses that were unlikely to understand the risks associated with IRHPs. This might include, for example, bed and breakfast businesses which could previously have been ineligible due to their large numbers of seasonal workers. At the same time, some businesses that fell under the criteria published last June will be excluded. These include, for example, small subsidiaries of multi-national corporations, or Special Purpose Vehicles that are sophisticated enough to have understood the terms of the product or have sufficient resources to obtain advice.  

Q3: Are the relevant balance sheet figures gross or net?

Answer:

Where, at the time of the sale, the customer did not belong to a ‘group’, the relevant asset size is a gross figure of £3.26 million.

Where at the time of the sale the customer belonged to a ‘group’, the relevant asset figure is £3.26 million net of any set-offs and other adjustments made to eliminate intra-group transactions, or £3.9 million gross.

Q4: Does the ‘50 employees’ stated mean 50 full time employees or can some be part time?

Answer:

The number of employees means the average number of staff – both full-time and part-time – employed by the company in the financial year in which the product was bought. This is explained in detail in the Companies Act 2006.

Q5: I think I am a ‘sophisticated’ customer. What does this mean for me?

Answer:

Sales to ‘sophisticated’ customers are not included in this review. If you believe you were mis-sold an IRHP you may complain to the bank. If you are dissatisfied with the outcome of your complaint, you may be able to take your complaint to the Financial Ombudsman Service.

I think I am a ‘non-sophisticated’ customer. What should I do if I think my bank has incorrectly classified me as a ‘sophisticated customer’?

Q6: I think I am a ‘non-sophisticated’ customer. What should I do if I think my bank has incorrectly classified me as a ‘sophisticated customer’?

Answer:

If a customer believes that their ‘sophistication’ assessment has not been carried out correctly they can appeal to the bank as part of the review. In these cases, the bank’s decision will be re-examined and verified by the independent reviewer. See question 4 under category Review and redress determination process for more information on accepting or appealing your redress determination.

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