The Financial Conduct Authority (FCA) has published its first update on banks’ reviews of sales of Interest Rate Hedging Products (IRHPs).
In summer 2012, the FCA identified failings in the way that some banks sold IRHPs and announced that the banks involved had agreed to review their sales of IRHPs made to certain customers since 2001. The banks then tested their approaches to carrying out the review and in early 2013, the FCA published the findings of the pilot exercise. The FCA also announced then that the banks had agreed to conduct their reviews using the approach set out in the FCA’s report.
Since the beginning of the full review in May 2013, and with over 30,000 cases to review, the banks involved have taken on 2,800 staff to work through claims and have so far reviewed in excess of five million documents. More than 25,000 sales (85% of the total number of sales) are in the process of being assessed and the first letters offering compensation have been sent out.
In light of this progress, the FCA expects that most customers will be informed of the result of their review, and of any possible basic redress, by the end of the year. Due to their complicated nature, redress offers to customers making a claim for certain consequential losses, may take longer.
By the end of August, 10 offers of redress have been accepted by businesses, totalling £500,000. The FCA expects this figure to increase rapidly over the coming months – 210 offers have already been sent to customers with a further 1,700 offers due to go out shortly.
Martin Wheatley, chief executive of the FCA said:
"With 85 per cent of cases now under review, banks have made progress. But like the thousands of affected small businesses, we want to see redress paid quickly to those who have suffered loss as the result of mis-selling."
The IRHP review can deliver fair and reasonable redress to customers without them needing to hire lawyers or claims management companies. As a first step, the banks must identify those customers with the relevant IRHPs who fall within the scope of the redress scheme. A ‘sophistication’ assessment is then carried out. Those ‘non-sophisticated’ customers who fall within the redress scheme will then be contacted by their bank and asked whether they would like to participate in the review.
Customers who took out the most complex products will be automatically due redress, whilst those sold other interest rate hedging products will have their cases reviewed to see if they were mis-sold (customers with caps will need to complain to their bank first). Each case will be reviewed by an independent reviewer to check the work of the banks.
In the final step, those customers who have been mis-sold products and have suffered loss will be offered fair and reasonable redress which will aim to put them back in the position that they would have been in had there not been a mis-sale – added to this will be simple interest, typically at eight per cent per year. In some cases, customers may also be able to claim other losses caused by the mis-sale.
The charts show that the majority of ‘sophistication’ assessments have been completed and that those customers assessed as ‘non-sophisticated’ have been invited to join the review. For customers who have opted-in to the review, the majority of ‘compliance’ assessments (i.e. determining whether they were mis-sold an IRHP) are under way and, where applicable, customers have been progressed to the redress phase, with a view to agreeing what is fair and reasonable redress with their banks in the particular circumstances of their case.
The FCA will provide monthly updates on the progress of banks’ reviews. As individual cases reach full and final settlement, the updates will include information on redress offers.
The review of IRHPs falls under the FCA’s objective to secure an appropriate degree of protection for consumers.
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