Adviser speaks out against ‘confidentiality clauses’

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THE banks should not be allowed to impose confidentiality clauses in connection with compensation for “consequential losses” they will have to pay firms who were mis-sold complex products, it was claimed yesterday.

The comments were made by a spokesman for Vedanta Hedging, which is advising companies who may have been mis-sold interest rate swap products by the major banks. Mis-selling victims should also have the right of appeal if they are unhappy with the level of compensation set by an independent reviewer in connection with the interest rate swaps scandal, according to Vedanta.

Interest rate swaps are complicated derivatives that might have been sold as protection - or to act as a hedge - against a rise in interest rates. In many cases, the customer did not fully grasp the risks involved. They were marketed as low-cost protection against rising interest rates, often as a condition of a business loan. But businesses were left with colossal bills after the financial crisis caused interest rates to plummet to historic lows.

The banking industry is facing a large compensation bill after a review of interest rate swaps sold to small businesses found that more than 90 per cent had been mis-sold. Most banks which mis-sold interest rate swap products have appointed independent reviewers, which have been approved by the newly created Financial Conduct Authority (FCA).

A spokesman for Vedanta, a derivatives specialist which is authorised by the FCA, said he believed the system of redress could be improved.

The Vedanta spokesman said: “We have concerns that the consequential losses that the banks will be providing back to SMEs (small and medium-sized enterprises) will be subject to confidentiality clauses. Given that the redress provided for the actual mis-sold derivative will not be subject to confidentiality, we can see no reason why the consequential loss should be kept confidential.”

A British Bankers’ Association spokesman said: “All banks are following the process as laid down by the FCA.

“The banks engaged in this review are all working proactively with the FCA and independent experts to take forward the review process so that it can be resolved as swiftly as possible.”

A spokesman for the FCA declined to comment.