The ability to listen and learn from one another has always been vital in parliament, in business and in most aspects of daily life. But at this particular moment in time, as national and global events continue to reiterate, it is uncommonly crucial that we forge new channels of communication and reinforce existing ones. The following article from Sinels is an attempt to do just that. We would welcome your thoughts on this or any other Parliamentary Review article.
Rt Hon The Lord David Blunkett, MP
Rt Hon The Lord Eric Pickles, MP
THE PARLIAMENTARY REVIEW
Highlighting best practice
16 | SINELS
Philip Sinel, Majority Partner
Founded in 1988, Sinels Advocates is a litigation law firm
based in Jersey, with an international reputation and a
global capability. It specialises in litigation and dispute
resolution for both individuals and corporations, residents both
in Jersey and abroad. It has a global reach, and a large part
of the practice has involved actions against financial service
providers, including banks. Senior Partner Philip Sinel discusses
how it responded to the mis-selling of Libor in 2008.
Mis-selling of Libor
The mis-selling of Libor linked products to businesses by their own bankers,
unfairly impacted a large number of SMEs. Although the government set up an
ombudsman scheme following industry pressure, the qualifications for inclusion
in that scheme were altered to suit the banks. This meant that a large number of
family-owned SMEs, the sort of businesses that take generations to build up but a
small amount of time for a banker to destroy, were excluded.
The effect of interest rate swaps was that, as rates fell, because it was a swap the
borrower got the obverse. As the rate fell to 0.5 per cent, borrowing then became
available at 2.5 per cent, but the effect of the swap was to lock borrowers in at five
to six per cent. Because that then became unsustainable, penalty charges brought
it up to nine per cent for anything up to 30 years. When the clients then said they
wanted out, the banks told them there would be a cost and that the break charges
could not be financed, so businesses could not service their borrowing and could
not afford to refinance and they went bankrupt.
Many well-run businesses providing jobs, services and infrastructure were holed
below the water line, some never recovered and some dragged their directors and
shareholders under with them. We had a client stuck in at nine per cent over a 28-
year period with no possibility outside of litigation of getting out of it because of
the incredibly high and unadvertised cost of breaking the instrument.
We pulled back cash and benefits in the tens of millions for clients and saved a
large part of Jersey’s hospitality industry. In the case of one of our smaller clients
who spent just over £3,000 with us, they received £140,000 in cash and reductions
going forward worth another £140,000 to them. When they first looked at their
product they thought they had bought life insurance, showing just how poor the
information being supplied to clientswas.
Our basic methodology:
»Speaking to our colleagues abroad in the field – cross-fertilisation of knowledge
AT A GLANCE
»Majority Partner: Philip Sinel
»Founded in 1988
»Based in Jersey
»Services: Litigation often for
those in a disadvantaged
position against banks and
»No. of employees: 7
BEST PRACTICE REPRESENTATIVE 2019
»COMMON THEMES UNDERLYING MIS-SELLING
»Clients were not informed of the true risks
»Clients were not informed how much money the bank was making
»Clients were not informed that an interest rate cap could have been
bought with absolute safety for a fraction of the cost involved in
having a swap
»Clients were not informed that for the banks it was a one-way bet –
they could terminate when they wanted but clients could not
»Clients were not informed that swingeing break charges would be
»Methodically going through every
piece of open source intelligence
and learning what was available on
»Finding whistle-blowers, people who
had previously been on the inside
and who could be turned or who
»Finding technical experts who could
draw up a comparison between
what was sold and what should have
»Looking at the relevant codes of
practice for lenders operating in
We first built up the intelligence
picture, we discovered that dedicated
sales teams, mislabelled as advisers, had
been selling these instruments for the
benefit of the banks. The banks who
sold the products were invariably the
counter-party on the other side of the
deal. As the client lost, the banks won,
which gave rise to an inherent conflict
of interest. Banks were harvesting
their own clients’ information to pass
to their own in-house sales teams. If a
client already had a loan and then they
wanted to renew it, they had to buy
one of these products.
In the case of one clearing bank, a
sales advisor told us that by May 2008
he had sold one of these instruments
to every client he had, at which stage
he was told by his supervisors to go
out and re-hedge. In practice, that
meant expanding the period of the
hedge to the benefit of the bank and
at the expense of the client.
Libor is the interest rate to which
the swaps were fixed; clients got the
observe, so if Libor went down, the
clients interest rate went up, and if
Libor went up, the clients interest rate
went down. The banks knew where it
was going, ie down, but they forgot to
tell their clients. In May 2008 not only
did we see what the banks had thought
was going to happen, but Libor, which
was supposed to be reflective of the
rate at which banks borrowed from
each other, was being described as
“the rate at which no bank could or
did borrow at”. Libor was fictional and
artificially depressed in order to give the
impression of bank strength.
In May 2008, Libor was at 2.5 per cent.
During the course of that year, Barclays
became insolvent, Lloyds and RBS
needed government handouts and HBOS
was bankrupt, following Northern Rock.
We now see traders being prosecuted
belatedly for rate fixing, but it is far
from clear that the regulator and the
government were not aware.
Farces like Libor should be brought
to an end immediately. The regulator
should never have allowed this situation
to happen, and not only in relation
to the Libor rate. Nor should the
regulator allow banks to offer products
when they are the counter-party
without giving out some very explicit
warnings and some clear and honest
explanations. There must be a robust
system in place for making sure that
clients can make informed decisions.
It should be a statutory requirement to
have an independent financial adviser
present when signing a contract with
a bank. It was a dereliction of duty to
allow the banks to rewrite the rules
for the ombudsman reviewing their
mis-selling. We also need legislation
to insert a duty of good faith into all
contracts. Other nations have it and
we cannot rely on the judiciary to do it;
they need statutory encouragement.
below the water
line, some never
The Rt Hon Theresa May MP's Foreword For The Parliamentary Review
British politics provides ample material for analysis in the pages of The Parliamentary Review. For Her Majesty’s Government, our task in the year ahead is clear: to achieve the best Brexit deal for Britain and to carry on our work to build a more prosperous and united country – one that truly works for everyone.
The right Brexit deal will not be sufficient on its own to secure a more prosperous future for Britain. We also need to ensure that our economy is ready for what tomorrow will bring. Our Modern Industrial Strategy is our plan to do that. It means Government stepping up to secure the foundations of our productivity: providing an education system that delivers the skills our economy needs, improving school standards and transforming technical education; delivering infrastructure for growth; ensuring people have the homes they need in the places they want to live. It is all about taking action for the long-term that will pay dividends in the future.
But it also goes beyond that. Government, the private sector and academia working together as strategic partners achieve far more than we could separately. That is why we have set an ambitious goal of lifting UK public and private research and development investment to 2.4 per cent of GDP by 2027. It is why we are developing four Grand Challenges, the big drivers of social and economic change in the world today: harnessing artificial intelligence and the data revolution; leading in changes to the future of mobility; meeting the challenges of our ageing society; and driving ahead the revolution in clean growth. By focusing our efforts on making the most of these areas of enormous potential, we can develop new exports, grow new industries and create more good jobs in every part of our country.
Years of hard work and sacrifice from the British people have got our deficit down by over three quarters. We are building on this success by taking a balanced approach to public spending. We are continuing to deal with our debts, so that our economy can remain strong and we can protect people’s jobs, and at the same time we are investing in vital public services, like our NHS. We have set out plans to increase NHS funding annually by an average by 3.4 percent in real terms: that is £394 million a week more. In return, the NHS will produce a ten-year plan, led by doctors and nurses, to eliminate waste and improve patient care.
I believe that Britain can look to the future with confidence. We are leaving the EU and setting a new course for prosperity as a global trading nation. We have a Modern Industrial Strategy that is strengthening the foundations of our economy and helping us to seize the opportunities of the future. We are investing in the public services we all rely on and helping them to grow and improve. Building on our country’s great strengths – our world-class universities and researchers, our excellent services sector, our cutting edge manufacturers, our vibrant creative industries, our dedicated public servants – we can look towards a new decade that is ripe with possibility. The government I lead is doing all it can to make that brighter future a reality for everyone in our country.
British politics provides ample material for analysis in the pages of The Parliamentary Review