We use cookies to improve site performance and enhance your user experience. If you'd like to disable cookies on this device, please see our cookie management page.
If you close this message or continue to use this site, you consent to our use of cookies on this devise in accordance with our cookie policy, unless you disable them.

Close
In association with

Home > Opinion > Philip Ryley

Are interest rate swaps the next mis-selling scandal?

The possibility of a full scale review or litigation against banks could spell trouble for the whole financial services sector.

By Philip Ryley | Published Mar 28, 2012 | Investments | comments

In recent months, the ever increasing storm clouds have been looming, threatening the next big financial services mis-selling scandal – interest rate swaps. The spotlight has been directed at the banks rather than at the intermediary advisers.

Nevertheless, the possibility of a full scale past business review and/or high volume litigation against the banks over mis-selling of this type of product can spell trouble for the whole financial services sector.

Economic recovery is meant to come from banks lending money to SMEs. It is ironic that instead, the same banks may be forced to pay out large compensation payments to SMEs, thus saving some of those businesses from financial ruin, rather than lending to those same businesses, money which they badly need and for which the banks could charge interest and make a business profit.

While the PPI mis-selling scandal resulted in high volume complaints, this alleged mis-selling is likely to attract high value litigation claims. The extent of the problem is not yet fully known but the signs point to a significant number of claimants. The parliamentary interest has gathered pace and as the chairman of the Treasury select committee was reported to say: “Thousands of firms, from caravan parks to children’s nurseries and fish and chip shops, have been affected.” Unfortunately, the reports of litigation rulings in Germany and elsewhere indicate this may be a much bigger problem for the global banking community.

While the PPI mis-selling scandal resulted in high volume complaints, this alleged mis-selling is likely to attract high value litigation claims

This month, it was reported that the FSA said it would look into the possibility that interest rate swaps may have been mis-sold by the banks. If the regulator opts for a full scale investigation into the sales practices of the banks, a past business review may well be on the cards, causing yet further losses to a fragile UK banking system.

Claimants seeking compensation for such losses will not have to go far to find help from lawyers and claim management companies – a web search will reveal the extent to which this next litigation opportunity has been seized by those who make claims to be specialists in interest rate swap litigation.

Philip Ryley is head of financial services and markets for Michelmores LLP

COMMENT AND REACTION

Our Columnists

Hal Austin

Hal is editor of Financial Adviser and has been for more than a decade. He has previously worked on a number of local and national publications.

Ashley Wassall

Ashley is editor of FTAdviser and writes on all areas of retail finance. Previously supplements editor at Money Management and editor of a European private equity publication.

John Kenchington

John is editor of Investment Adviser and has written about investments for several years. He has worked at titles including City AM and was recently named in the MHP 30 To Watch list of up-and-coming media names.

Jon Cudby

Jon is editor of Money Management and has 12 years' experience covering retail personal finance. In 2005, Jon was launch editor of FTAdviser and most recently he was head of online content for Incisive Media's financial services titles.

Tony Hazell

Tony is a freelance financial journalist, having been editor of Money Mail at the Daily Mail for a number of years. He has been writing a column in Financial Adviser since 2005.

John Lappin

John is a weekly contributor to Investment Adviser with 15 years’ experience in financial journalism and 10 years writing on the IFA sector. He was formerly editor of an IFA trade magazine.

Most Popular
More on FTAdviser
FTA jobs