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RBS – Interest Rate Swaps


The Royal Bank of Scotland has accepted that it sold interest rate swaps to thousands of small businesses (SME Customers).

The precise number of SME Customers of RBS who have been sold interest rate swaps is not revealed but the figure of “thousands” appears to be not wide of the mark.

The SME Customers appear to have included small and medium size retailers of various types, care home operators and farmers among others.

What are interest rate swaps?

They are a financial product utilised by the Banks and have commonly involved a Cap and Collar Agreement whereby a maximum interest rate (a cap) was fixed together also with a minimum interest rate (a collar).

The theory was that this would give the business an element of security within this interest rate range although in reality it was a calculated gamble on future interest rate movements.

In fact at the time when this product was sold when it was suggested by the Banks that interest rates might rise in fact they fell very substantially over a short period of time to the current historically very low rates so that the customers who entered into these Agreements have not benefitted from these low rates but have been burdened with much higher interest rates.  It is suggested that the Banks did not properly explain to SME customers in many cases the possibility of interest rates falling lower than the collar or in fact much lower.  Furthermore the method of calculation is complex and would have caused particular difficulty for many customers.

What would be the basis of a Claim?

The grounds would include the following:-

That there were substantial penalties for breaking the swap.

  1. The customer did not understand the way the swap worked and/or it was not properly explained to the customer by the Bank which had a duty of care to the customer.
  2. The swaps were a one way      bet for the Bank which had the right to terminate the arrangement if it worked against the Bank notwithstanding that the customer could only do this on payment of substantial penalties.

There is potential for a claim by virtue of the breach of various conduct of Business Rules set out by the Financial Services Authority and there is also potential for a Court Action.

Rather than individual SME customers mounting their own claims there is the opportunity for savings of costs by pursuing a Class Action either by way of complaint to the FSA or Court Action.  The FSA through the Financial Ombudsman can award compensation of up to £100,000 and there is the separate possibility for a Class Action.

While we are pleased to consider individual claims nevertheless to the extent that there are similar causes of Action a Class Action would also be viable and could involve substantial costs savings.

In appropriate cases we would consider a “no win no fee arrangement” and no court proceedings would of course be taken without the authority of the individual clients.  It would be proposed to seek After the Event Insurance to protect clients in the event of any unsuccessful Court Action.

Leon Kaye Solicitors has  long and successful experience in Class Actions and we currently act in relation to a separate proposed Class Action against the Royal Bank of Scotland on behalf of approximately 8,500 Investors arising out of their Rights Issue in 2008.

For further information please contact Leon Kaye Solicitors ( or complete our on line enquiry form.