Interest Rate Swap Products

Debate between Guto Bebb and Damian Collins

Thursday 21st June 2012 Commons Chamber

[Guto Bebb]

That is a key issue. In many cases, the term of the swap is longer than that of the loan, which the Financial Services Authority believes to be evidence of mis-selling.

Evidence about the background to interest rate swaps suggests that banks started to target small businesses from about 2006 onwards. The practice was probably curtailed in 2008-09, although there are a few examples of such products being sold after that. In a number of cases, banks have settled with businesses out of court. My concern is that banks have placed significant gagging orders on those businesses, which stops them explaining the terms and conditions of the settlement.

Existing regulations should have been taken into account when these products were sold. Swaps are financial derivatives covered by section 85 of the Financial Services and Markets Act 2000. They are, therefore, a regulated product and any adviser who tries to sell them has a duty to understand the needs of their customer. That is a key point. A fair, clear and not misleading explanation of the product must be provided to the customer, yet in many of the cases I have seen the information provided was far from satisfactory.

[Damian Collins (Folkestone and Hythe) (Con)]

I, too, congratulate my hon. Friend on securing this debate. Does he share my concern about the experience of Castlewood Hotels in my constituency? It was sold such a product by the bank and told that if it did not accept it, its business could be in jeopardy in future.

[Guto Bebb]

Again, that is an important point. In significant numbers of cases a swap product has been sold to a business as a condition of a loan being made available, so that the future availability of credit was dependent on the acceptance of a swap product. Obviously, a business in need of finance would be persuaded of the need to take up that product in order to receive finance, and that is a key issue.