Review of interest rate hedging products

We have agreed with the FSA that we will undertake a review of all interest rate hedging products sold on or after 1 December 2001. There are different categories of product to be reviewed, which are explained below.

The review, which will be undertaken under the scrutiny of an independent reviewer, will include products that were purchased and repaid in this period as well as current products.

Further information is available on the FSA website, specifically in the factsheet that has been prepared in relation to the review.

How will you know if you are in scope of the review?

Retail classified customers who purchased a relevant product may be within the scope of the review. In addition, we will need to determine whether or not you meet the sophistication test (as described by the FSA). Further information about sophistication can be found on the FSA website.

What is the process for the review?

The specific process depends on which products you purchased:

More complex products: If you purchased a more complex product, we will write to you to explain that you may fall within the scope of the review. For clarity, these more complex products are defined by the FSA as products which enable a customer to “limit interest rate fluctuations to within a specified range, but involves arrangements where, if the reference interest rate falls below the bottom of the range, the interest rate payable by the customer may increase above the bottom of the range.” This letter will contain important information about the review, including a set of FAQs to explain the process. If you have purchased these products, you will not need to contact the bank.

If you do fall within the scope of the review (i.e. you are considered to be a non-sophisticated customer), we will write to you to confirm that we are reviewing your sale. We will then agree with the independent reviewer what the appropriate redress should be and will write to you setting out the proposal for redress and your options.

More standard products: If you purchased a more standard product (excluding caps), such as a swap or simple collar, we will write to you to explain that you may fall within the scope of the review. This letter will contain important information about the review, including a set of FAQs to explain the process. If you have purchased these products, you will not need to contact the bank at this stage.

If you do fall within the scope of the review (i.e. you are considered to be a non-sophisticated customer), we will write to you and ask if you would like the sale to be reviewed. If you tell us you would like a review then this will be carried out again under the supervision of the independent reviewer. The outcome of this review may be that we are satisfied that the product you purchased is appropriate for your circumstances and was properly sold. If that is the case, and once that has been agreed with the independent reviewer, we will write and tell you.

If we conclude that the sale of more standard products did not meet the standards applicable at the time we will agree with the independent reviewer whether redress is appropriate and if so what redress is fair and reasonable in the circumstances. At that stage we will write to you setting out our proposals.

Caps: If you purchased a cap (a product which places a limit on any interest rate rises), you will only be included in the scope of the review if you make a complaint about the sale and do not meet the sophistication test (i.e. you are considered to be a non-sophisticated customer).

In this case, we will review the sale under the supervision of the independent reviewer as outlined above for more standard products, including whether or not you meet the sophistication test.

If you feel you have the grounds to complain as part of this independent review, please do so through the bank’s complaints handling process.

It is important to note that any complaints received after the independent review has been completed, which is currently expected to take approximately 9 months, will be dealt with in accordance with the bank’s usual complaints handling procedures and without the involvement of an independent third party.

What if you disagree with our outcome?

The Review Process will be scrutinised by an independent reviewer and be overseen by the FSA.

If we determine that you are not in scope because you meet the sophistication test and the independent reviewer agrees with our assessment, then a letter will be sent to you with the agreed conclusion and your options should you disagree. You will be entitled to complain as set out below.

If you are dissatisfied with the outcome of the review, you may be able to take your complaint to the Financial Ombudsman Service but there are eligibility criteria for doing so. Please refer to the Ombudsman’s website for further details.

What will happen next?

This review will take some time, so please bear with us as we work through the detail. We intend to prioritise those customers who are most financially vulnerable. We have committed that, except in exceptional circumstances such as, for example, where it is necessary to preserve value in a customer’s business, we will not foreclose on or adversely vary existing lending facilities, without giving prior notice to the customer and obtaining their prior consent until a final redress determination has been issued or redress provided to the customer.

What if you want to complain?

This process does not affect your right to complain complaints handling process should you feel you have grounds to do so.

There are specialist claims management companies and law firms who may offer to submit a customer’s complaint to the bank or the Financial Ombudsman Service. However, they will charge for using their services. They may ask for a fee up front, or offer to act on a ‘no win, no fee’ basis – meaning they will take proportion of any redress customer may be given. This may be as much as a third of any money due back to the customer. Customers do not need to use a claims management company because the process is straightforward.

Where can you get more information?

If you are a customer and would like general information on the process, please call our hotline on 0800 056 7100 (Typetalk 18001 0800 056 7100). We will be unable to comment on individual cases while we are undergoing a review.

You can find further information on the FSA website relating to the findings of the review into the sale of interest rate hedging products to small and medium sized businesses across 11 banks. This also provides further descriptions of the sophistication definitions and the types of products covered by the review.