By Rob Miller
Forensic accountant and expert witness specialising in offering expertise on POCA, cryptocurrency, and financial dispute matters.
Updated September 2026 | 4 min read time
Interest rate hedging products, more commonly known as swaps, were sold heavily to individuals and SMEs from around 2001 onwards, with 2006 and 2007 the most prolific years. Many were mis-sold, and the losses that followed fall into two parts: the direct cost of the swap itself, and the consequential losses that flowed from it. Quantifying both is forensic accounting work.
What Were Interest Rate Hedging Products?
Hedging products are complex derivative instruments. They range from a basic swap to a cap and a collar, and in the right circumstances they can be appropriate for a business exposed to interest rate movements. The problem was rarely the products themselves. It was how they were sold.
In many cases the bank did not properly consider the client’s business, or their ability and willingness to take on the risk. Businesses were given too little information to decide whether the product suited them, and often the swap was made a condition of the loan whether the client wanted it or not.
Where a swap was imposed as a loan condition, a cap would frequently have been the more appropriate product. A cap places a ceiling on the interest rate a business pays if rates rise, while still letting it benefit if rates fall. It carries a premium, and businesses were often put off by that cost, or told they could not afford it. Set against the break costs that a swap can carry, that premium usually looks small in hindsight.
What Does Mis-Selling Look Like?
The patterns recur. Common examples include:
An individual persuaded to sign an extendable swap two years before their existing swap ended. By the time the new swap took effect, rates had already fallen to 0.5%.
Businesses offered only “zero premium” products, meaning a swap, without being shown any more appropriate alternative.
A ten-year swap sold to a company that had made clear from the outset it intended to keep its properties for no more than three years.
An individual pressured into signing while on holiday, the contract faxed to their hotel and dated the last day of the month.
Direct and Consequential Losses
A mis-sold swap causes two kinds of loss. The direct loss is the additional interest paid over what the business should have paid. The consequential loss is everything that flowed from it, and it is frequently the larger figure.
Consequential losses range from additional bank charges on an overstretched overdraft through to lost profits, and in the worst cases the failure of the business itself. Because the extra interest on most swaps was substantial, few victims escaped without some consequential loss, and many did not realise they were entitled to claim for it separately from the direct interest.
A Worked Example
One case illustrates the scale. A property company was placed into receivership by its bank. Before that decision, the bank had instructed a major accountancy firm to review the business. The review concluded that if the company continued trading it would run an annual cash deficit of £250,000.
The same review showed the company’s swap payments came to £750,000 a year, and that breaking the swap would cost £1.6 million.
The arithmetic tells the story. But for the swap, the company would not have been in difficulty at all. It would have run a cash surplus of around £500,000 a year. Instead it was liquidated and its shareholder made bankrupt. The consequential losses in a case like that are significant, and establishing them means reconstructing what would reasonably have happened to the business but for the mis-selling.
How a Forensic Accountant Quantifies the Loss
Quantifying a swap claim is the same discipline as any other loss of profit calculation: establish how the business was performing before, during and after the affected period, then determine what would reasonably have happened but for the mis-selling, and calculate the difference.
That means valuing both the direct interest losses and the consequential losses, supported by evidence robust enough to withstand challenge. Where a claim proceeds to litigation, proving those damages is a distinct exercise from establishing the mis-selling itself, and the figure has to be built to a standard a court or the other side’s expert can test.
A clear, well-evidenced calculation also serves the claimant directly. The more coherent the figure, the easier it is for the other side to assess, and the less time a claimant spends arguing over quantum.
Instruct a Forensic Accountant
If you or a client have been mis-sold an interest rate hedging product and need the direct and consequential losses quantified, I can help. I handle every instruction personally, from the first review of the figures through to an expert report and, where needed, expert witness evidence in court.
Call 0161 243 0595 or email info@inquestaforensic.co.uk to discuss the claim.
