'Swaps' mis-selling: Welsh firms still failing despite compensation scheme

The Financial Conduct Authority (FCA) said cases were being speeded up

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Welsh businesses are still failing six months after a scheme was set up to compensate them after they were mis-sold financial products, claims an MP.

Aberconwy Conservative MP Guto Bebb, who is leading a commons committee on the issue, said millions were being spent administering the scheme.

But he said the money was not getting through to businesses which had suffered huge losses.

The Financial Conduct Authority (FCA) said cases were being speeded up.


IRSAs were commonly sold along with business loans. They were designed for big businesses as a way of betting against or hedging interest rate rises.

From around 2005 onwards they were more commonly sold along with to smaller firms looking for business loans.

Businesses thought they were simply fixing their repayment rate and were told if interest rates went up, the swap would protect them from higher charges.

Many say they had no choice and were forced into taking on the IRSA along with the loan.

But what they did not realise was that if interest rates went down - they had to compensate the banks.

As rates fell to an all-time low, many companies were forced into repaying hundreds of thousands of pounds in addition to their loan repayments. Often repayments for the IRSA were more than the repayments for the loan.

Banks would then increase banking charges for businesses now classed as "at risk".

Victims claim they were not made aware of the risks of interest rate swap agreements (IRSAs) which are commonly known as swaps.

"We still have businesses who are failing, not because they made the wrong decision but because they were mis-sold an inappropriate product and we really do need to get the FCA to simplify and move ahead at a much quicker pace," said Mr Bebb.

About 40,000 businesses across the UK are thought to be affected.

Some people attended a rally at Westminster before a Commons debate on the plight of small businesses on Thursday, including Pembrokeshire farmer Carwyn James who is owed £180,000 by Barclays.

He is critical of the attitude of banks, not just for selling him the swap in the first place, but also for the way they kept on charging him extra banking fees while he was in trouble.

"There was conscious process of piling it on, waiting for us to pop," Mr James said.

Unbearable strain

Financial expert Martin Berkeley

"Wales was seen as easy pickings. It was a feeding frenzy - the care sector and caravan parks particularly.

"Wales has a large rural economy and that was targeted by the banks. Banks like the agricultural sector because there is good lending which is low risk. Banks don't like to take risks.

"The other reason that Wales was targeted was because it had been neglected, it was seen as virgin territory. North Wales was particularly productive and they did a lot of business in Aberystwyth."

He said local bank managers would be approached by their seniors and forced to introduce customers who wanted big loans to the interest rate swaps team.

"Managers would have to go through their book of loans and choose the ones to go to the swaps team," he said.

"If they didn't they could face disciplinary measures. If the sale went through they would receive a credit or bonus.

"There was a tendency to try to sell the most profitable products to the customer. Many customers didn't understand them."

"A short-term money-making attitude, that is the worst thing they have done, instead of helping businesses they finished them. We were at their mercy and it was open season."

In response, Barclays said it had built a quick and clearly defined "consequential loss assessment process" which was now in full swing.

"If a customer submits a claim within 40 days of their redress offer, we will review and provide them with a final redress offer within 28 days of receipt of their claim," said Barclays.

"We would encourage those who haven't yet responded to do so shortly so that their reviews can commence."

Federation of Small Businesses (FSB) Wales spokesman Iestyn Davies said the swaps mis-selling put businesses under an unbearable strain when they were also struggling with the recession.

'Lasting damage'

"Businesses have closed, they've gone to the wall and failed.

"But, more importantly, individuals' health has suffered, relationships have suffered and there has been lasting damage done as well to the credibility banks have as trusted advisors to small businesses," he said.

"These actions were immoral they were probably illegal but more importantly they are things which have caused people to be damaged as individuals.

The Gwenllian Court specialised in weddings and at its peak was doing around 100 a year

"We need them to have the redress they deserve to be put back in the position they were in before these products were sold to them."

The FCA said cases it hoped most would be reviewed by the end of the year.

It said it was encouraged that some banks announced this week they would start paying compensation in separate stages - effectively fast tracking compensation payments.

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