The Financial Services Authority (FSA) has instigated an industry-wide review of the sale of interest rate hedging products to small and medium sized businesses. First Trust Bank has voluntarily agreed to take part in this review.
With support from an FSA approved independent third party we will be reviewing the sales of interest rate hedging products since 1 December 2001 to ensure that they have met the required sales standards. More information about the role of the independent reviewer can be found on the FSA website.
For the purpose of the review of the sales of such products, customers are categorised by the FSA into three groups as follows:
Category A – sale of Structured Collars
Category B – sale of Interest Rate Hedging Products
Category C – sale of Caps
Within each group customers will be categorised by the Bank, in agreement with the independent third party, as either sophisticated or non-sophisticated. Sophisticated customers will be outside the scope of the main review.
Following a review of our pilot exercise which completed in December 2012, the FSA has confirmed that we can launch our main review of non-sophisticated customers from 14 February 2013.
The FSA has put an initial time frame for completion of the project at six months, although the priority is that there is a fair and reasonable outcome for all customers. As directed by the FSA, those customers who have already complained or are in financial distress will be prioritised during the main review. All remaining customers in scope will then be reviewed.
We will be writing to non-sophisticated customers in Category A and Category B as both these groups are impacted by the review.
Non-sophisticated customers in Category C are not included in the scope of the review unless they complain to the Bank during the course of the independent review. If you are a Category C customer and you are dissatisfied with the sale of your interest rate Cap product and wish to complain you may do so in writing directly to our Customer Care Unit at First Trust Bank, First Trust Centre, 92 Ann Street, Belfast, BT1 3HH or by email to email@example.com. If you make a complaint after the independent review, the complaint will be dealt with in accordance with the Bank’s usual complaints handling procedure, without the assistance of the independent third party.
In the meantime, if you have any queries or require further information please contact your Relationship Manager.
Definitions (as defined by FSA)
What is meant by sophisticated/non-sophisticated?
Please review the sophisticated assessment chart on the FSA website to assess how your business would be classified. A customer who does not meet the sophisticated criteria is deemed to be non-sophisticated and in scope of this review.
What is a Structured Collar?
This is an Interest Rate Hedging Product which enables a customer to limit interest rate fluctuations to within a specified range, but involves arrangements where, if the reference interest rate falls below the bottom of the range, the interest rate payable by the customer may increase above the bottom of the range.
What is an Interest Rate Hedging Product?
This is a derivative as defined in the FSA’s Glossary of Definitions which is separate to a lending arrangement and is for the purpose of managing interest rate fluctuations.
What is a Cap?
This is an interest rate hedging product which enables a customer to restrict his or her exposure to interest rate increases to a maximum upper limit, with no lower limit.
Further information on the above can be found in the frequently asked questions section of the FSA website.
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