Interest Rate Swap Derivatives

Debate between Martin Horwood and Mark Williams

Thursday 24th October 2013 Commons Chamber

[Mr Williams]

I concur with my hon. Friend. Many of us have cases like the one that she raises that suggest that TBLs need to be brought into this review or another review of some kind.

The FSA famously stated in “Interest Rate Hedging Products—Pilot Findings” that

“poor disclosure of break costs”

was one of

“the most significant issues in assessing the compliance of a sale”.

How is it possible that poor disclosure of break costs can constitute a mis-sale when the customer is buying a stand-alone product, with all that that implies, and yet there is no mis-sale if the bank buys the interest rate swap allowance, conceals it from the customer and then holds the customer liable for its terms and conditions? That is unjust nonsense. If a feature is worthy of regulation when it is contained in one product, why is it not worthy of regulation when it is contained and concealed in another product?

[Martin Horwood (Cheltenham) (LD)]

My hon. Friend is right to highlight break costs, which have been a serious issue for some of my constituents. Is he aware of court evidence given by a former bank employee who said:

“When pitching to a customer the most the…Sales Team would try to say on the subject was that there could be break costs if the swap is broken early. Providing the customer didn’t ask, we never went into any detail as to the likely level of these costs.”

Does not that underline how much of this debate is not about complexity or understanding, but about straightforward mis-selling?

[Mr Williams]

That goes to the heart of the argument. The banks and the ironically named relationship managers were trusted by our constituents, and that trust has been breached.

I have asked the FCA for its legal advice that supports the view that it should not regulate fixed-rate commercial loans. The response stated that it is not normal for the FCA to disclose its legal advice because, by so doing, it could be said to have waived its legal privilege more generally, making it difficult to resist broader disclosure, and thereby setting a precedent that would make it harder for it to resist disclosure in other cases. I am sure that that is crystal clear to everyone in the House—so much for the commitment to transparency.

The interest rate swap scandal has cost many businesses dear. I recently drove down one of the approach roads to Aberystwyth, the largest town in my constituency, to see another boarded up shop. That shop was not boarded up three weeks ago; it is boarded up now because of the issues that we are discussing. Many people had no concept of the product that they were pressured to buy. That applies as much to embedded swaps as to stand-alone products. I implore the Minister to reflect and to put pressure on the FCA to consider tailored business loans as part of the review. They are an enormous problem.