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FCA Objects to RBS Evidence in U.K. Interest-Rate Swaps Suit

The U.K.’s markets regulator attempted to intervene in a lawsuit by two businessmen who are suing Royal Bank of Scotland Group Plc for allegedly selling them an inappropriate 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. The case was thrown out 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 Court of Appeal dismissed the case, saying RBS hadn’t advised Rowley and Green to buy the swap and didn’t fall under the scope of the rules, according to the businessmen’s lawyer Jon Green. A written version of the decision isn’t expected until the autumn, he said,

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.

No Misselling

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.”

“This ruling will make no difference to our commitment to deliver a fair and timely outcome for businesses who feel they were mis-sold a swap,” said RBS spokesman Erfan Hussain in an e-mailed statement following the court of appeal’s decision.

Chris Hamilton, a spokesman for the FCA, declined to comment on the case.

“We were surprised by the finding in the initial judgment that no advice was provided,” said Green, commenting after the case was dismissed. “In our experience, it is very unusual for complex financial products to be sold without advice.”

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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