The IB Times has interviewed Martin Berkeley & Abhishek Sachdev of Vedanta Hedging about the practice of Yorkshire and Clydesdale Banks providing Tailored Business Loans to SMEs.
Cruically, Fixed Rate Loans remain excluded from this process. This leaves many SMEs with huge break-costs on their Fixed Rate Loans with little ability to challenge the Banks.
October 24, 2012 9:33 AM GMT
Yorkshire Bank and Clydesdale Bank has added Tailored Business Loans (TBL) to its investigation with the Financial Services Authority (FSA) into alleged mis-selling, even though the loans are not covered by the FSA’s agreement with the UK’s banks.
While the 29 June agreement with HSBC, Barclays, RBS and Lloyds, as well as all other lenders,forces them to investigate each interest rate swap agreement (IRSA) sold to determine if mis-selling had occurred, Yorkshire Bank and Clydesdale Bank has voluntarily agreed to extend the probe into TBLs that were sold from 2001 onwards.
A TBL is a loan with an underlying derivative packaged together, as opposed to an IRSA which is a separate interest rate product that would be sold alongside a loan or a mortgage.
However, similar to an IRSA, a TBL can still incur the same break costs if the agreement is terminated early in a low interest rate environment. Speaking to a number of lawyers, SMEs and FSA-Authorised derivatives experts in the market, break costs have sometimes reached £500,000.
FSA-Authorised derivatives experts at Vedanta Hedging confirmed that while these are products are a concern for SMEs, customers be careful in expecting the same form of review and redress as IRSAs.
“Clients of ours that have Fixed Rate Loan TBL products have received letters from Clydesdale confirming that they are not part of the FSA Review process [since they are not regulated by the FSA]. However, we are working with some solicitors and barristers (as well members of the Government) about making the necessary technical and legal arguments about the fact that Fixed Rate Loans should be treated the same as if an SME was sold a stand-alone derivative,” said Martin Berkeley and Abhishek Sachdev at Vedanta Hedging.