Following a two month investigation by the Financial Services Authority ("FSA") into the allegations of mis-selling of Interest Rate Swap Agreements ("IRSA"), major banks have now agreed to compensate small and medium sized businesses ("SMEs").
Current estimates are that over the past 10 years around 28,000 of these agreements have been sold to SME’s. In some cases these products were not suitable and have resulted in businesses facing high monthly payments, against a back drop of an interest rate that is currently running at an all time low.
An IRSA is an agreement between two or more parties to exchange interest payments of a particular principal amount. In a standard IRSA the principal amount is the same for both parties, and therefore does not change hands, with the parties agreeing to exchange fixed for floating and floating for fixed interest rate payments. The benefits for the parties can be: limiting or managing exposure to fluctuations in interest rates; and acquiring a lower interest rate than a party could otherwise have been able to obtain.
The most common example of an IRSA is where party A agrees to pay a fixed rate of interest to party B. In return party B agrees to pay party A a floating rate of interest (using reference to a rate such as LIBOR). In this example, the principal amount is the same for both parties. It is not exchanged between the two parties.
The conclusion of the FSA means that businesses potentially affected by this issue can now start proceedings to have their own investments reviewed and where appropriate compensation payments may be sought. Businesses that wish to take action would have to evidence that at the time of the IRSA or similar hedging agreements being put in place their business met at least two of the following criteria: i) a turnover of less than £6.5 million; and/ or (ii) a balance sheet of less than £3.26 million; and/or (iii) less than 50 employees.
For business that believe they have been mis-sold an interest rate swap agreement, or other hedging agreement, assistance is available to help recover some form of compensation. Approaching a bank directly is one course of action, however, many businesses will prefer to seek out truly independent advice, with support, as appropriate, from third party experts, who can will guide their business through the review process.
In some cases, firm such as ours, may be able to do this on a flexible fee arrangement, including "no win, no fee".
For further information on the mis-selling of IRSA's see the FSA site click here‹‹ Back to articles