RBS are again in trouble for mis-selling derivatives, to which the Bank has countered that the purchaser of the Swap, a small tiling firm, was a "financially sophisticated" customer.
It seems that the main criteria applied by the FSA to determine whether the purchaser/claimant is "financially sophisticated" and therefore entitled to compensation is the value of its business in terms of sales and assets, rather than actual experience and understanding of the derivative product, which in reality few purchasers of derivatives (and their local bank manager or accountant) have.
This calls for a qualitative and not quantitative assessment of "sophistication" to establish entitlement to compensation.
Scott Wotherspoon runs a small tiling firm in Scotland. In 2008, when he bought a shopfitting company, he asked his accountants to check its books. There was no problem with the shopfitter. But Wotherspoon was about to run into trouble with his bank. The 43-year-old borrowed about £3 million from Royal Bank of Scotland. As part of the transaction, the bank insisted he buy a hedging product, a kind of insurance policy, so he could keep repaying the loan even if interest rates rose. If interest rates fell instead of rising, that would cost extra - which Wotherspoon alleges the bank did not explain. He thinks he is due compensation for mis-selling, like thousands of other businesses that Britain's financial watchdog has ruled are eligible.The regulator won’t look at his claim because his company is now too big.