After a surge of Mis-Sold IRHPs claims, it now appears that many SMEs that trade overseas may have been mis-sold Foreign Exchange Products (FX products).
John Frenkel, Senior Partner at Frenkels Forensics Chartered Accountants, offers some useful information on the surrounding explosion of consequential losses for SMEs.
A significant number of SMEs may have been mis-sold FX products and will be seeking compensation. As a result of the impact of a mis-sold product, businesses should also look to consider the consequential losses that have impacted their cash flow, ability to invest their profits and caused them additional finance costs. At the time of writing, the FCA is not yet effectively supporting the business community on mis-sold FX products.
Frenkels Forensics has significant and proven experience in assisting businesses assess their consequential losses and we have laid out some useful information on what those consequential losses are and what you should do if you believe you have been mis-sold an FX product.
Mis-sold FX Products: An overview
Companies and individuals trading in foreign currencies have been pressurised by banks and financial institutions to get protection from adverse currency movements by entering into some form of hedging arrangement.
A common and straightforward example of this is a forward contract, allowing for fixed currency exchange rates (costs) over the coming months or years.
However, some banks and financial institutions have sold SMEs inappropriate currency products which include complex derivatives that, instead of helping the customer protect itself from currency exchange risk, are speculative in nature and have the potential of exposing the customer to enormous liabilities.
How was this service mis-sold?
The associated risks involved in these unnecessarily complicated FX products often were not fully explained to customers. These risks include:
- The financial impact on businesses if and when interest rates fell.
- The matter of high exit fees associated with the cancellation of these products by the customer.
Ultimately, as well as a claim against a financial institution for a mis-sold FX product, there may well be consequential losses that businesses have suffered, for example:
- Lost business opportunities
- Lack of cashflow for re-investment / profit (e.g. as a result of falling interest rates)
- Additional costs such as finance charges and additional interest.
Comparisons to the mis-sale of Interest Rate Hedging products
The mis-selling of FX products shares many similarities with the mis-sale of IRHPs by banks in the last 10 to 15 years, such as:
- Failure to ensure the customer fully understood the risk
- Failure to fully inform the customer of the associated exit costs
- Allowing ‘over-hedging’ to occur (i.e. when the amounts and/or duration did not marry up with the underlying loans)
- Allowing non-advised sales processes to turn into advice being given to the customer
- Allowing the rewards and / or incentives to be a key driver in the above ‘failing’ sales practices.
Frenkels Forensics has been involved for several years in assisting businesses with their consequential loss claims arising from IRHPs. We can do the same for your client who has been mis-sold a FX product. Contact us today.
What should you do if you think your client has been mis-sold an FX product?
Contact us. Frenkels Forensics|Chartered Accountants has a strong track record in supporting businesses and their legal advisors in the assessment of consequential losses following the mis-selling of IRHPs. As such, we are fully versed in the support businesses need to seek consequential losses from mis-sold FX products.
For consequential loss claims. Seek Frenkels Forensics.