The U.K.’s markets regulator intervened in a lawsuit by two businessmen who are suing Royal Bank of Scotland Group Plc for allegedly mis-selling them an interest-rate swap.
Property owners John Green and Paul Rowley said RBS didn’t properly warn them about the risks of the swap, which ended up costing them about 400,000 pounds ($614,000) on a loan of 990,000 pounds, according to documents from a U.K. Court of Appeal case that started today.
The Financial Conduct Authority, which has probed the sales of banks’ interest-rate hedging products, said it “takes issue” with RBS’s evidence in the case and described a lower court judge’s analysis as “somewhat opaque,” according to court documents.
The FCA reached an agreement in February for lenders including RBS, Barclays Plc and HSBC Holdings Plc to review deals and compensate customers after it found “serious failings” in the sale of interest-rate swaps to small business. RBS has set aside about 700 million pounds for swap-related claims.
The Edinburgh-based bank said in its court filings the judge who rejected Green and Rowley’s claim hadn’t misinterpreted the law, and it complied with FCA rules.
The “judge found that the appellants understood every feature of the swap about which they complained. Put simply, the swap was not mis-sold.”
Erfan Hussain, a spokesman for RBS, and Chris Hamilton, a spokesman for the FCA, declined to comment on the case.
“This is potentially a watershed case for the thousands of businesses that have been impacted by interest-rate swaps,” said Jon Green, a lawyer for the businessmen, in an e-mail before the start of today’s hearing. The hidden costs of the transaction left them “at the mercy” of RBS, according to their court documents from the appeal.
Thousands of businesses, from fried fish cafes to dentists, have sued banks over interest-rate swaps that were supposed to protect against rising rates, and that turned out to be costly.
The regulator intervened in the case to help the court “understand how the FCA considers the relevant rules ought to be construed and applied and in view of the extensive on-going review it is undertaking” into the products, it said in court documents.
The case is Green & Anr v The Royal Bank of Scotland, U.K. Court of Appeal, Civil Division, case no. A3/2013/0138.
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