Geoffrey Cox MP calls for FSA to act now on mis-selling of interest rate swap products
21st June 2012
Geoffrey Cox MP for Torridge and West Devon has spoken out in Parliament about the "grave scandal" of the mis-selling of complex Interest Rate Swap Agreements. During a debate in the House of Commons last week, Geoffrey called for the Financial Services Authority [FSA] to investigate fully claims that a number of Banks mis-sold inappropriate interest rate hedges to a large number of small and medium businesses [SMEs], including several local firms.
A recent survey of businesses found the 79% of SMEs had been told by their lender’s derivative expert that interest rates would rise. None of the local businesses affected had been warned that if interest rates dropped their costs would increase. Commenting on the issue, Torridge and West Devon MP Geoffrey Cox said:
“This is a classic case of mis-selling which the FSA should investigate fully. Some of my constituents were invited to hotel receptions, for potentially hundreds of businesses to attend, where they received an aggressive sales approach like that of a timeshare salesman. My constituents were never told that the salesman were earning commission from their sales and they were simply given inappropriate advice.”
The banks have not disclosed how many of these interest-rate hedges they have sold to SMEs, but it was reported to the Treasury Select Committee that RBS and Barclays, two of the UK’s biggest lenders to smaller businesses have sold them to 5,000 and 2,000 clients respectively.
In May the Financial Secretary to the Treasury, Mark Hoban MP asked the FSA to produce a report to quantify the size of the issue.
Mr Cox: The hon. Gentleman is reciting experiences that are exactly replicated by constituents of mine. Indeed, more concerning is the fact that some of my constituents were invited to hotel receptions, for potentially hundreds of businesses to attend, where they received a sales approach like that of a timeshare salesman. My constituents were never told that the salesmen were earning profits from what they were selling and they were never given appropriate advice. Does he agree that the whole flavour of what is coming out of this debate is such that the Minister must now tell the House what prompt and immediate action and inquiry will be undertaken into what is increasingly a very grave scandal?
Mr Williams: I completely agree with my hon. and learned Friend: it is indeed a grave scandal. My constituents were not invited to hotels, but they had three meetings in their home. They also had several phone calls and were presented with the choice—if it could be called that—of three essentially similar complex derivative products, which, by their own admission, they struggled to understand and the risks of which were never explained.