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Interest Rate Protection Products - Important Information for customers

Background

On 29 June 2012, the Financial Services Authority (FSA) announced it had reached an agreement with a number of banks, including HSBC, in respect of its investigation of the sale of interest rate protection products to small business customers.
The FSA announcement can be read here.

The FSA has also published the key findings from its investigation and next steps, including an overview of the types of interest rate protection products it considered, the types of customers who will be included in the review, how the review will work as well as answers to the most common questions.

Between September and October, each bank conducted a pilot with a limited number of customers to test their proposed methodology for the review. The pilots were overseen by independent reviewers to ensure they were completely fair and objective.

New FSA Announcement

On 31 January 2013, the FSA released the results of the pilots and announced that the review will commence shortly. After a brief period to ensure our procedures are consistent with the final approach, we will begin reviewing individual cases.

To help you to understand the review and whether it might affect you, we have included a detailed set of questions and answers below.

If you are an HSBC business customer covered by the review and have been sold an interest rate protection product that will be included in the review that HSBC will carry out, you need take no further action at this stage as we will be contacting you as soon as possible in order to outline the next steps.

The whole process will be scrutinised at each stage by an independent reviewer and overseen by the FSA. The independent reviewer is known as a Skilled Person, and we have appointed Deloitte LLP to act in this capacity for HSBC1.

Those customers who are managed directly by our Loan Management Unit, will be prioritised once the review begins.

In agreement with the FSA, Interest Rate Cap products are not automatically included in the review; but if you have purchased a Cap product and wish to raise any issues, you can write to us at HSBC Bank plc, Interest Rate Hedging Review Team, Level 4, 8 Canada Square, London, E14 5HQ or call us on the helpline number below.

If you have further general queries, please call our dedicated helpline. Please note however that the Helpline cannot discuss specific cases.

on 0800 783 1256 2



1. What have the banks agreed to do?

In short, we have agreed with the FSA that we will, for all sales between 1 December 2001 and 29 June 2012:

  1. provide appropriate redress on the basis of what is fair and reasonable in the circumstances to 'non-sophisticated' customers who were sold structured collars;
  2. review sales of other interest rate hedging products (except caps) for 'non-sophisticated' customers and where it is considered appropriate, provide redress on the basis of what is fair and reasonable in the circumstances; and
  3. review the sale of caps if a complaint is made by a 'non-sophisticated' customer, and where it is considered appropriate, provide redress on the basis of what is fair and reasonable in the circumstances.

The exercise will be scrutinised by an independent reviewer and overseen by the FSA.

2. When will the review begin?

Following the FSA's announcement on 31st January 2013, we are committed to starting the review as soon as possible so we can work towards giving certainty to our customers. We will be working with the independent reviewer to make the necessary changes to our review process resulting from the latest FSA announcement, following which we will start the review when authorised to do so by them.

3. Will/Can I be included in the review process?

We have agreed the scope of the review with the FSA. We will ensure that all customers who have entered into interest rate protection products with us are identified, and (with the exception of customers that purchased Interest Rate Cap products) each customer's circumstances will then be assessed to determine whether they fall within the scope of the review. Whether or not a customer falls within the scope of the review will be scrutinised by an independent reviewer, Deloitte LLP and overseen by the FSA. Customers who purchased an Interest Rate Cap product should refer to question 10.

4. How long will the review take?

We want to complete the review as quickly as possible.  While many cases will be fully resolved within six months, there are cases with varying degrees of complexity that will require significant engagement with customers. In order to reach a fair outcome for each customer, it may take up to a year to complete the full review.

5. When can I expect to hear from you about my particular case?

We will write to you shortly to provide you with general information about the review.

We are unable to give you a specific time when we will begin to review your case. We hope to contact the majority of customers over the coming months to confirm if you are in scope for the review. If you are in scope, we will inform you in writing and invite you to submit any additional information that you would like to be considered during the review. Please assist us by returning this information as promptly as possible.

6. What is the purpose of the independent reviewer?

To ensure the review process is fair and objective, it will be scrutinised at each stage by an independent reviewer. The independent reviewer is known as the Skilled Person and Deloitte LLP has been appointed to act in this capacity for HSBC.

7. What will happen if I have had dealings with Deloitte in the past and I believe there would be a conflict of interest?

In cases where there may be a potential conflict of interest with Deloitte LLP, an alternative independent reviewer will serve as the Skilled Person.

8. I bought an interest rate swap, what should I do?

If you bought an interest rate swap on or after the 1 December 2001, we will contact you to explain whether you fall within the scope of the review (i.e. whether you are considered to be a 'non-sophisticated' customer) and ask you to indicate whether you want your case to be assessed.

If you confirm you wish to be part of the review, your case will be assessed. The outcome of the review will be agreed with the independent reviewer and will then be communicated to you.

If you are found to be 'sophisticated' and the independent reviewer agrees with this assessment, then you will not be included in the review. However, you will still have a right to complain to us outside of the review process (see question 17).

9. I bought a structured collar, what should I do?

If you bought a structured collar on or after the 1 December 2001, we will contact you to explain whether you fall within the scope of the review (i.e. whether you are considered to be a 'non-sophisticated' customer).

If you fall within the scope of the review, your case will be assessed. The outcome of the review will be agreed with the independent reviewer and will then be communicated to you.

If you are found to be 'sophisticated' and the independent reviewer agrees with this assessment, then you will not be included in the review. However, you will still have a right to complain to us outside of the review process (see question 17).

10. If I only bought a cap and no other Interest Rate Protection product, what should I do?

If you bought a cap on or after 1 December 2001 and think that it was mis-sold you can make a complaint to us at HSBC Bank plc, Interest Rate Hedging Review Team, Level 4, 8 Canada Square, London, E14 5HQ to set out the details of the sale and explaining why you think there was a mis-sale.

If you complain during the course of the Review, and are considered a 'non-sophisticated' customer, your complaint will be dealt with in the same way as the sale of other interest rate hedging products (except structured collars).

If you complain and are considered a 'sophisticated' customer, your complaint will be dealt with as part of HSBC's usual complaints handling procedures and you will not fall within scope of the Review.

Question 11 provides the definition of sophisticated and non-sophisticated customers.

Sophistication Test

11. How do I know if I am a 'sophisticated' or 'non-sophisticated' customer?

Broadly, the review will include business customers classed as 'non-sophisticated' at the time of the trade and who purchased an interest rate protection product (excluding standalone Interest Rate Caps) between 1 December 2001 and 29 June 2012.

A customer will be classified as 'sophisticated' if certain 'objective' criteria are met. The criteria include annual turnover, balance sheet size, number of employees and the total notional amount of hedge trades in the financial year during which the sale was made.

Additionally, the FSA has agreed that a customer can be classified as 'sophisticated' on a 'subjective' basis, if it can be demonstrated that at the time of the sale the customer had the necessary experience and knowledge to understand the service to be provided and the type of product or transaction envisaged, including its complexity and the risks involved.

A full definition of the sophistication test criteria is available on the FSA website:

http://www.fsa.gov.uk/library/other_publications/interest-rate-swaps/interest-rate-swaps-faqs

12. I think I am a 'sophisticated' customer. What does this mean for me?

Sales to 'sophisticated' customers fall outside the scope of this review. If you believe you were mis-sold an interest rate hedging product you may complain to us and your complaint will be dealt with in accordance with our usual complaint handling procedures.

If you are dissatisfied with the outcome of your complaint, you may be able to take your complaint to the Financial Ombudsman Service but there are eligibility criteria for doing so. Please refer to the Ombudsman's website for further details:

http://www.financial-ombudsman.org.uk/

If you are ineligible to take your complaint to the Financial Ombudsman Service you may want to consider seeking legal advice.

Review

13. Will I be given the opportunity to contribute to the review process?

Yes. If you are in scope for the review, we will write to you and invite you to submit any information that you consider relevant to the review process. You will also be asked to indicate if you would like to have a call with the file review team, (together with the Skilled Person if you wish) in order to discuss your recollections of the sale. This call will not be able to give you any indication of what the outcome of the sale is likely to be and what the redress outcome may be.

Redress

14. How much redress will I get?

If you are in scope for the review, the review process will determine whether or not any redress should be made available and, if so, what redress is fair and reasonable in all the circumstances. This might include replacing the existing product with an alternative product, terminating the product, or providing a partial or full refund of payments associated with the product.

15. When will HSBC contact me offering me redress?

While we are committed to completing the review as quickly as possible, we are unable to estimate how long it will take to contact individual customers at each stage of this process.

To help you understand the process, we will first determine whether you are in scope for the review and advise you accordingly. If you are in scope, we will invite you to submit any information that you consider relevant to the review process. Finally, we will review your sale to determine whether any redress is due. Each stage of the process will be scrutinised by the independent reviewer. We will ensure that all customers are treated fairly and receive regular communications throughout the review and redress process.

Complaints

16. What should I do if I have a general query about the review?

We have set up a dedicated helpline who can assist you with any general queries about the review. You can reach it on 0800 783 1256. Please note that the helpline cannot discuss specific cases.

If you have a more specific query about your case, please contact your Relationship Manager who will be able to help you in the first instance. If you wish to make a formal complaint, you can follow the guidance below.

17. I want to make a complaint about my interest rate product.

You are entitled to make a complaint, but at this stage there is no need for you to complain in order to ensure that we assess whether or not you fall within the scope of the review. We will inform you as soon as possible whether or not you fall within the scope of the review. Customers who purchased an Interest Rate Cap product should refer to question 10.

If you fall within the scope of the review, you may wish to wait until your file has been reviewed in accordance with the FSA agreement (which includes scrutiny by an independent reviewer) and then discuss the outcome of that review with us.

If, following the conclusion of our review exercise, you make a complaint, we will not re-review a file that has already been scrutinised by an independent reviewer, but you may be entitled to complain to the Financial Ombudsman Service if you wish to do so.

18. You have already rejected my old complaint. Will HSBC reconsider its position?

Customers who have previously complained and who fall within the scope of the review will be treated in the same way as those who have not previously complained.

19. What happens if I have made a complaint and not yet had a decision?

We will handle your complaint in accordance with the FSA agreement. This means there may be a delay in our providing a final response to your letter. However, we believe that this will lead to a clearer outcome overall.

We will first decide with the independent reviewer whether your complaint falls within the scope of the review. If it does, your case will be reviewed in line with the processes we have outlined.

If it does not, then we will continue to review your complaint in accordance with our usual complaints handling procedures and in line with the FSA rules on handling disputes.

20. Can I still take my complaint to the Financial Ombudsmen Service (FOS)?

Yes. If, following the conclusion of our review of your file in accordance with the FSA agreement (which includes scrutiny by an independent reviewer), you wish to complain to the FOS, your right to do so will remain unaffected. Equally, you can still complain to the FOS before the Review takes place. If you are ineligible to take your complaint to the Financial Ombudsman Service, you may want to consider seeking legal advice.

http://www.financial-ombudsman.org.uk/

Other

21. Can I suspend my payments while the review is in progress?

In general, we will not be suspending customer payments while we conduct our review. The review will identify cases where redress is appropriate and, if so, what redress is fair and reasonable. In a very limited number of cases, we may suspend payments for customers facing financial distress until their case has gone through the review process (see question 22 for the criteria used to determine financial distress). It is important to note that customers still remain liable for their payments - that is, they are suspended and not cancelled.

22. I'm in financial difficulty. How will you support me?

In order to ensure that we are supporting customers who are experiencing financial difficulty we will prioritise their cases during the review. These are customers who are being managed by our Loan Management Unit. If you consider you are in financial difficulty, please contact your Relationship Manager who will be able to review your individual circumstances and manage your case in accordance with their procedures.

23. My IRP break clause is due, can I exercise early termination on the break date without penalty?

The terms of the interest rate protection product that you have entered into remain effective pending the outcome of any review.

If the review concludes that the product was mis-sold to you, then depending on what is appropriate in all the circumstances, redress may include an option for you to exit the product early (if you wish to do so) at no cost.

If the review concludes that the product was not mis-sold to you, then the terms of the product will continue to apply, which may include paying a fee if you are entitled to exercise an early termination right.

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