What can you do if a SWAP deal goes wrong?

SWAP products are a type of derivative, and have been around since 2001. Many companies and individuals entered into these products without knowing the full implications. If you think you have been mis-sold a SWAP, find out what you may be able to do to reclaim any financial losses.

What is a SWAP?

SWAP are a form of derivative that is an interest rate hedging product ordinarily separate to a loan.

There are several types, but typically the following would have been sold to various bank customers:

• Cap and collar – which limits the rate rises and rate reductions.
• SWAPs – a fixed interest rate
• Structured collars – where interest rates are only allowed to fluctuate within a specified range.

These products have been around since 2001. However, the vast majority of them were sold by banks during the period 2005 to 2008.

They are all classified by the Financial Services Authority (FSA) as designated investment and as such are therefore regulated.

Many companies or individuals entered into these products without knowing the full implication of doing so. They were led to believe they would benefit from such products and that if there was a rise in interest rates in particular. However, it has come to light that the banks failed to advise on the full consequences of the hedge product and in particular what would happen if interest rates fell, as they did in 2008. In addition, customers were unaware of the exit fees, which were considerable.

This failure has led to many individuals and companies facing serious financial difficulties, and in some instances has meant businesses have failed.

Were you mis-sold a hedge product?

These are some examples of potential claims that have been made against banks:

• A customer did not understand the product that had been sold to him/her.
• Customers were not made aware of the termination fees and break costs.
• The FSA conduct of business rules (COBS) were not complied with.
• The customer is not aware of the implications of the banks’ ability to terminate the SWAP early.
• The bank owed a duty of care to the customer that it failed to meet.

Help and advice

If this sounds like a scenario you or your company find yourselves in, Sydney Mitchell’s Dispute Resolution team can provide a free analysis of a potential claim.

For help or advice on this or other related matters, please contact our Dispute Resolution team: Business and Commercial Disputes – Legal help | Sydney Mitchell Solicitors