The FCA review into failings in the way some banks sold 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 IRHPs made to unsophisticated customers since 2001. The full review started in May 2013. The banks have nearly completed their reviews, having sent a redress determination letter to 18,200 businesses and paid £2.2 billion in redress, including more than £500 million to deal with consequential losses.
The nine banks that are reviewing their sales of IRHPs are:
- Allied Irish Bank (UK)
- Bank of Ireland
- Clydesdale & Yorkshire Banks
- Co-operative Bank
- 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):
- To complain about the sale of their IRHPs through the banks’ usual complaints handling processes.
- 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 €2 million, or approximately £1.59 million, and fewer than ten employees.
- 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 18,200 redress determinations to customers, 14,700 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 13,900 customers have accepted a redress offer and £2.2 billion has been paid out, including £507 million to cover consequential losses. This means that, so far, around 95% of offers have been accepted.
In addition to the £2.2 billion of redress paid 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 chart below summarises the position at the end of June 2016:
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.
The banks are also 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 eligible can of course refer their complaint to the Financial Ombudsman Service, 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.
- ^ For 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.
- ^ That 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’.
- ^ 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 €2 million and fewer than ten employees.