Interest Rate Swaps: How SMEs are affected

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Updated: 12th January 2021

SMEs Claim Fraudulent Mis Selling of Interest Rate Swaps

A good number of small to medium size enterprises have voiced their concern following the Financial Services Authority (FSA) investigation into the mis selling of interest rate swaps. Many of these businesses had to take out small business loans as start up capital or when they were in distress and were completely unaware of the complexity of the financial product. It all stems from the fact that these interest rate swaps on business loans are tied directly to LIBOR rates which have undergone scrutiny because the FSA found them to be rigged.

It Takes a “Sophisticated” Director to Understand Interest Rate Swaps

According to rules and regulations of interest rate swaps, there needs to be a clear distinction between sophisticated and unsophisticated borrowers. The FSA has clearly defined the line of demarcation between the two and businesses must meet two of the guidelines to be considered sophisticated enough to understand what they are buying. Remember the Payment Protection Insurance (PPI) scandal of previous years? The major grounds for filing a claim was on the basis that borrowers didn’t fully understand what they were buying. This is the same situation here. The FSA has found that nearly 90% of those borrowers who were sold interest rate swaps on business loans didn’t have a clue as to how rates would be affected going forward.

Defining Sophisticated and Unsophisticated Businesses

A large part of the current controversy surrounding interest rate swaps mis selling is in the definition of what constitutes a ‘sophisticated’ business and an ‘unsophisticated’ business. The FSA states that a sophisticated customer meets at least two of the following conditions:

  1. business turnover greater than £6.5 million
  2. total on the balance sheet greater than £2.36 million
  3. total number of employees greater than 50
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However, if a bank can show that a customer had enough financial acumen to understand interest rate swaps then there are grounds to prove sufficient sophistication. This is why so many small to medium size enterprises are filing claims against lenders who sold them interest rate swaps in tandem with loans. They had insufficient knowledge to know that they could end up paying in a big way.

If you feel that you were victimised by interest rate swaps mis selling, Real Business Rescue can help you understand the process for filing a claim. Whilst banks are required to ‘investigate’ claims, they are likely to deny them on the first go round. This is evidenced in how they handled mis sold PPI. Talk to one of our insolvency specialists during a free consultation so that we can determine the best course of action.

It is especially important to contact us if you experienced financial distress due to high rates you were unexpectedly required to pay. It is our aim to keep SMEs solvent in the UK and we are very good at what we do. Call us on 0800 644 6080 so that we can help you claim back money that is rightfully yours. Our extensive office network comprises 100 offices across the UK with a partner-led service offering immediate director advice and support.

Keith Tully


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