Hedging Your Bets
There have been rumblings for months about the next large scale banking impropriety. The latest issue relates to the sale of highly complicated financial products to small businesses by banks.
The products, more commonly known as swaps, help to determine the interest rates paid by thousands of small businesses. Many businesses sold the product believed they were putting a cap on the interest they would pay in the event of a base rate rise. However, as rates actually fell to all time lows, the interest charge remained comparatively high.
Said Gerald Irwin of Sutton Coldfield based Licensed Insolvency Practitioners & Business Advisers, Irwin Insolvency “It appears that many businesses did not understand the complexities of the product or fully comprehend the unsuitability. Some businesses have alleged they were instructed to take out swaps for longer periods than the terms of their loans whilst others are claiming their bank would not approve any loan unless they agreed to the hedge.”
The allegations of mis-selling are currently being investigated by the Financial Services Authority but these investigations are still in the very early stages.
“Businesses have a number of options open to them should they believe there is a case to be answered. The Financial Ombudsman will offer free advice and can, in some cases, direct banks to pay compensation. There are, however, restrictions as the Financial Ombudsman Service is only open to those businesses with ten employees or less with an annual turnover of less than €2 million.
Alternatively, there are a number of practices that will offer a ‘no win no fee’ deal but it is essential to find an adviser with expertise in this highly specialised area,” added Mr. Irwin.