Vedanta Hedging (FSA Authorised) has been arguing from October 2012 when Clydesdale / Yorkshire Bank published the list of products they would review
that we could see no logic whatsoever in allowing some embedded derivative products (such as Collar’s and Structured Collar’s) to be part of the FSA Review, but not Swaps (which are embedded into a Fixed Rate Loan).
If the FSA argue that it cannot review TBL’s, then why are 12 other TBL products included in the review?
The only reason we believe that 21 products were included (including 12 TBL products), and just this one product (Fixed Rate TBL) was excluded, was because the Fixed Rate TBL was the most common product sold.
This has been confirmed in an article by Simon Bain at Herald Scotland who has spoken to an ex-Clydesdale Banker, claiming that 90% of TBL’s sold were Fixed Rate TBL’s:
More importantly, we believe that the far wider implication is that other UK Bank’s (including Lloyds TSB, Bank of Scotland, Santander) sold hundreds of thousands of Fixed Rate Loans exactly as per above, with embedded swaps. There can be no logical reason to force Clydesdale / Yorkshire to include Fixed Rate TBL’s but not the other Banks. This of course would massively increase their mis-selling provisions for the redress they have to provide, due to the sheer volume of Fixed Rate Loans provided, even to SME’s for as little as £100k.
This is because stand-alone derivatives were not generally provided to SME’s with borrowing of less than c£1m in our experience from across UK Banks. This is because Bank’s traders often felt that it was not economical to provide such small derivatives. Some Banks also took the view that the documentation (such as an ISDA and Terms of Business) would be too complex for very small SME’s to understand, so internally, imposed general threshold limits of sometimes £500k or £1m for certain types of derivative transaction.
For example, Lloyds TSB has said 90% of its Commercial Customers take Fixed Rate Loans…
This week has seen great momentum, with Vince Cable MP, Greg Clark MP and Jim McGovern MP all calling for these products to be included in the FSA Review.
Vedanta Hedging continues to explain and discuss this issue with the FSA, Lords, MP’s and the media – on behalf of our clients.