Financial Services Authority Review of the sale of Interest Rate Hedging Products
On 29 June 2012, the Financial Services Authority published the findings of their work on the sale of interest rate hedging products to small and medium sized businesses.
Barclays has reached agreement with the FSA in relation to a review that will ensure that all customers who have been sold these products are treated consistently and where there is evidence of mis-selling, Barclays will provide redress. The Independent Reviewer who will oversee the process has been appointed by Barclays and approved by the FSA.
The review will cover sales of interest rate derivative products after 1st December 2001.
Products included in the review:
- Swaps; which enable customers to ‘fix’ their interest rate.
- Caps; which place a limit on any interest rate rises.
- Collars; which enable customers to limit interest rate fluctuations to within a simple range.
- Structured collars; which enable customers to limit interest rate fluctuations to within a specified range, but involves arrangements where, if the reference interest rate falls below the bottom of the range, the interest rate payable by the customer may increase above the bottom of the range.
Further details of the products can be found in the FSA update.
As part of the review Barclays has agreed to:
- Provide redress on the sale of structured collars to ‘non-sophisticated customers’ made on or after 1 December 2001 (see below for an explanation of the meaning of ‘non-sophisticated customers’);
- Review sales of other interest rate hedging products (except caps or structured collars) for ‘non-sophisticated customers’ on or after 1 December 2001; and
- Review the sale of a cap if a complaint is made by a ‘non-sophisticated customer’ during the review.
- Complaints from ‘sophisticated customers’ will not be subject to the past business review but will be dealt with in accordance with the bank’s usual complaints handling procedures (see below for an explanation of the meaning of ‘sophisticated customers’).
Scope of review
Barclays will first need to identify those customers which fall within the scope of the review and those which fall outside, on the basis of the FSA’s “sophisticated” customer criteria. The criteria are set out on page 1 of the FSA update and briefly outlined below.
“Sophisticated” customers - will not be included in the review, and are defined by the criteria agreed with the FSA for the purpose of this review.
A customer would be classified as a ‘sophisticated’ customer if at least two of the following were met, in the financial year during which the sale was made:
- A turnover of more than £6.5 million
- A balance sheet total of more than £3.26 million
- More than 50 employees
Alternatively, should the bank be able to demonstrate that, at the time of the sale, the customer had the necessary experience and knowledge to understand the service to be provided and the type of product or transaction envisaged, including their complexity and the risks involved, they will be classed as a sophisticated customer.
Where Barclays believes that a customer meets the sophisticated customer criteria, Barclays will notify the Independent Reviewer who will assess the appropriateness of the classification Barclays has made. The Independent Reviewer’s decision will be binding on Barclays.
Where the Independent Reviewer agrees that a customer meets the sophisticated criteria, we will write to the customer to confirm this and we will explain the basis for reaching that conclusion. These customers are outside the scope of the review, but may still make a complaint to Barclays, which we will deal with in accordance with Barclays’ Complaints Handling Procedure.
“Non-Sophisticated” customers are in scope of the review and are determined by the FSA as “smaller businesses that are unlikely to possess the specific expertise to understand all of the risks associated with these products.”
Where a customer meets the non-sophisticated criteria:
(a) The sale of any Structured Collars to that customer will automatically be included within the review and the customer will be entitled to redress which is fair and reasonable in all the circumstances. The appropriateness of the type and level of redress will be assessed by the Independent Reviewer; and
(b) Barclays will write to the customer in relation to any other interest rate hedge product that is not a Structured Collar (excluding caps) that have been entered into by the customer to ask whether they want the sale of that product to be reviewed. If the customer does opt for a review then the sale will be included within the review. The review will determine whether it would be appropriate to provide redress to the customer. Any redress must be fair and reasonable in all the circumstances. The decision on whether redress should be provided and, if applicable, the appropriateness of the type and level of redress will be assessed by the Independent Reviewer.
What Should Customers Do Now?
If you have purchased a cap, these will not be included in the review unless you complain about the sale of the cap to Barclays during the course of the independent review. The time-scale of the independent review is currently being finalised and we will provide more information once this has been determined. If you do complain, the review will determine whether it would be appropriate to provide redress to you. Any complaint that is made but falls outside the review period will be dealt with in accordance with Barclays complaints handling processes.
Alternatively if you have purchased an interest rate hedging product other than a cap, you are already included in the process to determine if you should be part of the review as a non-sophisticated customer. Barclays will contact you in due course with more information about whether you may request to be included in the review.
All customers in scope will be subject to a review and Barclays will inform you in writing of the outcome of the review undertaken using the above process.
Barclays will also advise you of the next steps and options available to you.
We would encourage you to read the section in the FSA Update headed “Claims management companies”. In that section the FSA states: “Customers do not need to use a claims management company because the process is straightforward.”
Keeping you updated
We are committed to keeping you informed and we will update this site when details of the review are finalised.
In the meantime if you have any questions that are not answered in the FSA’s Update on Interest Rate Hedging Products please read the FSA’s online FAQs, or contact your Barclays Relationship Team in the first instance or you can call either of the central helpline numbers on 020 7773 6602 or 020 7773 6309.