Very interesting to see what is going on in the UK regarding the mis-selling of swaps to small businesses.
This article in The Telegraph talks about the FSA’s potential sanctions against the four major banks and the growing discontent amongst those now facing significant financial loss.
“The FSA’s review followed an investigation by The Sunday Telegraph and The Daily Telegraph, which uncovered evidence of widespread mis-selling of complex interest rate derivatives by banks.”
This once again highlights the perils of placing 100% trust in your bank’s advice when it comes to hedging any type of financial risk. Whether you are looking to mitigate exposure against interest rate shifts or currency fluctuations you should only enter into derivative transactions that you fully understand and that you can explain to your Board.
This echoes the warnings in Richard Eaddy’s recently-published report “7 things your bank won’t tell you about currency hedging”. You can download this free report here
This unfortunate situation also clearly demonstrates the necessity of knowing the value of your swaps (or any derivative transaction), so that when the unexpected happens, you are fully aware of the implications on your position and are prepared to act accordingly.
If only they had been using Hedgebook…