Unfortunatley continued FX volatility caused by Brexit uncertainty has again enabled some banks and brokers to sell complex FX derivatives to corporates.
Some of these products bear little resemblance to ‘hedging’ or ‘risk management’ and are in fact outright ‘gambling’. However, the true advantages and disadvantages are rarely spelt out in an adequate manner for these corporates, even though we are in the MiFID 2 Regime. Many institutions continue to adopt a tick-box mentality when it comes to the compliance and sales process of these products.
We advise several large corporates on how they should hedge their FX risk which can include the use of derivatives where appropriate.
The FT published an article this morning also highlighting this, including a quote from our MD, Abhishek Sachdev:Brexit boom in currency hedges sparks fears of mis-selling _ Financial Times
Vedanta quote below:
Abhishek Sachdev, chief executive of Vedanta Hedging, a corporate treasury consultancy, says he flagged risks around TARFs to the FCA in a letter in October 2016. The regulator responded weeks later, saying a meeting to discuss the matter was not “at this stage …necessary”. A spokesperson for the FCA declined to comment on the growth of TARFs, referring the FT instead to a section of the regulator’s website describing its oversight of interest-rate hedging products. More vigilance is needed, said Mr Sachdev, who advised the FCA on its 2013 interest rates review. Some small companies find it “very difficult to resist” the TARF products, he said.