While this may prove heartening to those who argue swap mis-selling will
follow a similar trajectory it may prove to be the opposite.

It is clear that many senior bankers now believe that the decision by Lloyds
in 2011 to drop out of the legal challenge against PPI and begin paying out
on all claims was a huge mistake.

The frantic lobbying of the FSA by the British Bankers’ Association to put in
place a time limit on PPI claims shows the efforts now being made to put a
lid on the compensation costs and highlights the approach likely to be taken
by lenders towards swap claims.

Though the FSA’s pilot study suggests many small businesses can expect some
form of compensation, it is certainly not the open door to a blizzard of
claims in the manner of Lloyds and PPI.

For instance, the FSA admits that redress “will not be owed to the customer in
all cases where the sale did not comply with regulatory requirements”. In
other words, the bank may have broken the rules, but the customer will not
receive a penny in compensation.

Even if a customer is found to have been the victim of a mis-sale, there is
the thorny issue of what constitutes “fair and reasonable redress”.

This is only likely to become apparent over time as businesses start to
receive letters in the post detailing what they can actually expect to
receive by way of recompense from their lender.

For some, this will be everything they dreamed of, for many others it is
likely it will be nowhere near what they believe they are owed [quick aside
on litigation, but anyone who thinks a small business will be able to afford
bringing a claim against a bank after April has clearly not taken on board
the ramifications of the Jackson
reforms
].

With the parlous state of bank finances and a government unable to afford new
handouts to lenders, it is unlikely the authorities and the industry will
sanction any compensation that could potentially blow a new hole in lenders’
balance sheets.

Take the FSA’s figures. If more than 90pc of the 40,000 swaps under review
required full compensation, you would be looking at a total bill of
something in the region of £18bn, based on an average claim of £500,000.

If this were the case, then every major bank would currently be planning an
emergency rights issue of some kind, however the nonchalance with which
senior bankers continue to treat the issue suggests they think otherwise.

As a prudential regulator, the FSA has admitted it is conflicted in its dual
responsibility to ensure good conduct and the stability of the financial
system.

Senior Cabinet official have privately warned of the problem of landing banks
with a compensation costs they cannot afford.

Put another way, swap mis-selling may be a scandal too far for the government
and banks.

Swap mis-selling may be a scandal too far for the government and banks – Telegraph.co.uk
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