We are a leading City of London law firm with the specialist knowledge and experience of derivatives mis-selling claims to assist businesses who have suffered losses as a result of foreign exchange (FX) derivatives mis-selling by banks or currency brokers. We provide the very best forex derivatives mis-selling representation and use our banking and financial services litigation expertise to ensure we obtain the best possible results and compensation for our clients.
We advise and represent importers/exporters and other businesses making claims against banks or currency brokers for FX derivatives mis-selling, and provide a high-quality legal service in order to obtain the best possible results for our clients.
Our lawyers are regularly interviewed by journalists and broadcasters and featured in the media commenting on derivatives mis-selling. See our Media Appearances section below.
What is the FX Market
The FX market is one of the largest financial markets in the world and allows two parties to exchange different currencies at an agreed rate of settlement on the spot date (which is usually two business days after the exchange takes place). It is estimated that approximately 75% of global FX trading involves trading between different ‘G10 currencies’, including the British pound (GBP), the US dollar (USD), the Euro (EUR), the Japanese yen (JPY) and the Swiss franc (CHF).
Spot FX benchmarks, particularly those set in G10 currency pairs such as GBP/USD or GBP/EUR, are used to establish the relative values of different currencies across the world. Two of the main spot FX benchmarks are the 1.15pm ECB fix (i.e. the exchange rate for various spot FX currency pairs as determined by the European Central Bank at 1.15pm British time) and the 4pm WM Reuters fix (i.e. the exchange rate for various spot FX currency pairs determined by WM Reuters at 4pm British time).
What are FX derivatives and how were FX derivatives mis-sold?
Many SMEs in the UK, such as clothing wholesalers, food importers, and the hospitality and travel industries, deal with foreign currencies on a regular basis, and therefore need to be protected from exposure to any unforeseen movements in exchange rates.
When used properly, FX derivatives can form part of an effective and legitimate strategy to protect SMEs from exposure to fluctuating exchange rates. However, many banks and currency brokers instead promoted and recommended complex and risky FX derivatives that were unsuitable for SMEs and amounted to speculation rather than protection. FX derivatives are often complex, risky and unsuitable for SMEs for the following reasons:
- FX derivatives that last longer than 6-12 months become increasingly risky and expensive for SMEs due to the volatile nature of the FX market;
- FX derivatives containing leverage or ratio elements mean that SMEs become obliged to buy more currency (for example, twice or triple the amount of currency) than they actually need;
- When exchange rates move against businesses, that can trigger a margin call under the FX derivative that forces the SME to pay substantial cash collateral to the bank or broker;
- FX derivatives containing triggers that are activated mean that SMES will be committed to purchasing leveraged amounts of foreign currency at worse than spot rates, which means that the risks for SMEs are potentially unlimited if the exchange rate goes in the wrong direction; and
- Frequent restructuring of FX derivatives (usually at the instigation of the bank or broker in order to gain profit at their customers’ expense) offers better short terms rates to SMEs with the downside of worse rates in future.
The mis-selling of FX derivatives has caused significant financial losses to many SMEs, who were not provided with any adequate pre-sale advice, explanation or information about the risks and potential costs of these FX derivatives. The magnitude of these financial losses have worsened due to the increased GBP volatility resulting from the outcome of the Brexit referendum in June 2016.
The FCA’s Findings on FX Trading
The FCA began its investigations into the FX trading market in October 2013 and has found that, between January 2008 and October 2013, many banks and financial institutions did not exercise adequate and effective control over the business practices in the G10 spot FX market, including insufficient training and supervision of the FX traders.
Five major banks – Citibank, HSBC, JPMorgan Chase Bank, RBS and UBS – have been fined a total of over £1.1 billion by the FCA for their failure to control their business practices in the G10 spot FX market, while Barclays received the largest fine in FCA history (of £284 million) as a result of its failure to control the business practices in its FX business in London.
The FCA’s 13-month investigation also found that these banks’ FX failings led to:
- attempts by these banks to manipulate the ECB and WM Reuters fix rates for their own benefit and to the potential detriment of some of their clients;
- attempts by these banks to trigger clients’ stop-loss orders (which are designed to limit a client’s losses if exposed to adverse exchange rate movements) for their own benefit and to the potential detriment of some of their clients; and
- inappropriate sharing of confidential information (including client identities and information about clients’ orders).
How can FX derivatives mis-selling be resolved?
If you have been mis-sold an FX derivative, then there are several potential solutions including:
- attempting to negotiate with the bank or broker;
- complaining to the bank or broker;
- complaining to the Financial Ombudsman Service; or
- sending a letter before claim, issuing legal proceedings at Court, and litigating against the bank or broker.
The initial step may be to attempt to negotiate with (or complain to) the bank or broker, although this may not resolve the mis-selling dispute without the threat and/or commencement of legal proceedings. It is also possible to complain about the mis-selling to the Financial Ombudsman Service (“FOS”), via which it may be possible to receive compensation of up to £150,000. Our derivatives mis-selling lawyers have considerable experience of preparing and presenting detailed complaints on behalf of our clients to major banks and the FOS, and we are also able to advise if litigation offers better prospects for redress (which it can often be).
Our specialist derivatives mis-selling lawyers understand that your case is unique and we therefore adopt a tailored approach for your benefit, combining the facts of your case with our experience and understanding of derivatives mis-selling to prepare the strongest possible legal claim for you.
We understand that mis-sold FX derivatives can cause additional problems for your business (such as winding-up petitions, the appointment of LPA receivers or difficulties with HMRC) and we are therefore also able to offer you an integrated service with our experienced Insolvency and Taxation teams for your business rescue needs.
If you or your business have been mis-sold any FX derivatives, then please contact our Financial Services Litigation team for more information.