It is concerning to note in today’s Sunday Times that HM Treasury is planning on preventing SME importers and exporters from using currency options for managing their currency risk. Yet, there has never been a time when we need to encourage our exporters to help drive real economic growth.
Plan to split banks ‘will hurt recovery’ _ The Sunday Times
Even the Vickers report did not go this far, because it clearly stated that SMEs should be able to use simple derivatives to manage currency and interest rate risk.
Despite the concern of mis-selling of these products, we firmly believe that it is a wholly disproportionate response to ban all currency derivatives for SMEs (which in any event not the subject of the recent mis-selling derivatives problems).
We have provided both written and oral evidence to the Parliamentary Commission on Banking Standards about the manner and type of ‘simple’ derivatives that SMEs should be allowed to use for protecting against currency and interest rate rises.
If the rate of a currency moves by 15% in a year for example, an SME that exports in a competitive global market may not be able to sustain its profit margins if it is not protected from wide currency fluctuations.