Business Law & Compliance

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5 steps to handling an Interest Rate Swap mis-selling law-suit

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The Interest Rate Swap (IRS) mis-selling ‘scandal’ has certainly attracted a lot of attention over the past year. It has taken over 12 months for the first cases to start to come out of the review process with compensation, but this shouldn’t be interpreted as meaning there will be an easy windfall for businesses up and down the country. There is still a lot of work to be done. 

One thing that is very clear is that this is not just a PPI mark-II. It is an extremely complicated issue with cases that rely on the tiniest of detail in individual contracts, so potential claimants should tread carefully before pursuing a claim – receiving expert advice can make a huge difference. 

Anyone potentially put off about pursuing a claim should follow these five steps to gain clarity and put themselves in a winning position:

1. Those who fail to prepare…

It is an age-old adage but something that is of the utmost importance when going into a situation like an FCA review. If you fail to prepare, you must prepare to fail. Whilst the FCA review process appears to be straightforward, it is important to remember the detail and complexity of the agreements under review. The meetings have been positioned as ‘friendly chats’ but every word and term you put forward will be taken down and scrutinised. With no right to appeal after the review, it is vital that you give yourself the best chance of securing compensation for the loss and damage your business has suffered.

2. Check the limitation point 

Most interest rate hedging products will be subject to the Limitation Act, which stipulates that any claim must be brought within six years. This deadline runs from when the advice was given surrounding the hedging agreement, not when it was entered into. If this deadline passes while the FCA review is still underway, the business will have lost the opportunity to secure compensation through the Courts if their claim under the review is unsuccessful.

3. Request a Standstill Agreement

Put simply, a Standstill Agreement allows the contract to be put ‘on hold’, effectively suspending the limitation date. This gives you more time and should allow you to see the FCA review through to its conclusion whilst keeping alive the right to litigate should that prove necessary.

4. Check the detail of the agreement

Whilst a Standstill Agreement is a good idea, it is critical that all areas of a potential claim are included. You should not rely upon the agreement drawn up by the Banks, as it will not necessarily be in your interests – for example it could be too narrow, or miss out crucial parties. This could seriously impact your ability to make a claim at a later date or at worst you could lose your right to litigate altogether.

5. Seek professional advice

Regardless of doing all of the above, the most crucial piece of advice I could give to any business looking to make a claim of this nature against a bank is to seek expert advice. The FCA has said that legal advice is not necessary, but I strongly disagree. The banks have strengthened their armour with solicitors and accountants to represent them in the review process, so without the proper advice, any claimant will be on the “back foot” before they have even stepped through the door, if they have not ensured that they have “equality of arms”. The whole mis-selling scandal has arisen because of the complex nature of the products involved. It will need to be explained by reference to the appropriate financial regulations, authorisation checks and legal analysis. Most clients are simply not equipped to do this, and why should they be? They are experts in their own business field – not in finance or law.

There’s no hiding the fact that making a claim can be a daunting task at the best of times. Coupled with the detail covered by these IRS agreements, it is understandable that many people might be put off. But with the limitation date fast approaching for many businesses, now is the perfect time to seek redress and get the compensation you rightly and legally deserve.

Alison Loveday is a Managing Partner at Berg.

Recommended reading: 10 things everyone should know about mis-sold swaps

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