Posted by Helen Smith, senior broker at Litigation Futures sponsor TheJudge
The Financial Services Authority (FSA) recently confirmed that some of the largest banks in the country could be facing significant claims in relation to the latest mis-selling scandal to hit 650-663 the UK – interest rate swaps.
With banks already preparing to pay out more than £10bn as redress to victims of payment protection insurance mis-selling, they won’t be overjoyed to hear that the FSA believes a significant proportion of the 173 interest rate swap cases they have reviewed will result in more compensation payments. MB7-514
In the summer of 2012, the FSA discovered “serious failings” with regards to the selling of these types of financial instruments and speculation suggests that up to 40,000 interest rate swaps and similar products have been mis-sold to commercial customers over the past decade.
Included in the review were the sales of swaps by Barclays, HSBC, Lloyds and RBS together with the Clydesdale Bank, the Co-Operative Bank and Santander UK. The “big four” have apparently agreed to start reviewing cases internally with a view to providing customers with compensation. It is suggested that the cost of compensating these customers could be as high as £1.5bn.
With the backdrop of part 2 of the Legal Aid, Sentencing and Punishment of Offenders Act, coming into force on 1 April, clients must be aware that in order to obtain after-the-event (ATE) insurance with a recoverable premium, their solicitors must act now. The ATE insurance market is starting to become inundated with applications for cover and this will only worsen as we approach the April deadline. Moreover, the appetite for insuring these types of cases is fairly small; solicitors need to know which markets have exeperience in this area before they embark upon a search of the market.
More generally, with many solicitors and their clients are hoping to benefit from the current recoverability rules, this has inevitably led to a surge in applications for ATE insurance in recent weeks. It will inevitably take more time than usual for clients to receive responses to their applications and to secure insurance policies.
We are already warning solicitors that this surge means there is a possibility of new applications for ATE insurance not being processed in time for implementation of the LASPO Act. Indeed, one insurer in particular has confirmed to us that from 1 March it will be turning away new applications for litigation insurance from firms with which they do not have existing relationships. We expect other ATE insurers to make similar announcements, even if they work tirelessly to try and process the backlog.