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REQUIREMENT NOTICE

SKILLED PERSONS REPORT


To: [Name of bank] [the “Firm”]

Of: [Address]

Date: [Date]

This Requirement Notice (“the Notice”) in writing in accordance with Section 166 of
the Financial Services and Markets Act 2000 (“FSMA”) requires [Name of bank]
(“the Firm”) to provide the Financial Services Authority (“the FSA”) with a Report
(“the Report”) by a Skilled Person. The scope of the Report and the specific
procedures to be carried out are set out in the attached Annex 1 to this Notice.

The Firm gave an Undertaking to the FSA on [Date 2012] in relation to the Firm’s
proactive redress and past business review exercise for Interest Rate Hedging
Products (the “Undertaking”) (Annex 2). On [Date 2012], the FSA gave the Firm
notice in writing in accordance with Section 166 of FSMA to provide it with a Report
by a Skilled Person in relation to the Firm’s proactive redress and past business
review exercise (the “2012 Notice”). The Firm and the Skilled Person created a
methodology for the purpose of carrying out the proactive redress and past business
review exercise and tested the methodology in a pilot exercise as required by the 2012
Notice.

The FSA reviewed the Firm’s pilot exercise and the FSA and the Firm considered it
desirable to amend the Undertaking. The Undertaking was amended by a
Supplemental Agreement between the Firm and the FSA dated [Date 2013] and the
amendments set out in a Schedule thereto (Annex 3). The FSA and the Firm also
agreed certain matters relating to the conduct of proactive redress and past business
review exercise for Interest Rate Hedging Products in an exchange of letters/emails
dated [Date(s) 2013] (“the Exchange of Letters”) (Annex 4).

In light of the foregoing, the FSA considers it necessary to replace the 2012 Notice
with this Notice.

The defined terms used in this Notice and Annex 1 shall have the same meaning as set
out in the Undertaking (as amended).

The purpose of the Report is to provide an independent review of the proactive
redress exercise and past business review to be carried out by the Firm in respect of
sales of Interest Rate Hedging Products.

Section 166 of FSMA gives the FSA the power to require a Report on any matter
about which the FSA has required or could require the provision of information or
production of documents under section 165 of FSMA. Section 165 gives the FSA the
power to require information and documents reasonably required in connection with
the exercise by the FSA of functions conferred on it by or under FSMA.

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The appointment of a Skilled Person to produce a Report under Section 166 of FSMA
is one of the FSA's regulatory tools to supervise and monitor firms. The FSA may use
the Report and associated materials in connection with the exercise of its functions
under FSMA, including relying on the Report, or any part of it, in any subsequent
enforcement action that the FSA decides is appropriate to take.

The Firm is reminded of the requirements of Chapter 5 of the Supervision Manual
(“SUP”) (which is part of the FSA Handbook) regarding Skilled Persons and in
particular the requirements of SUP 5.5 which apply in the case of the Report required
by this Notice.

The FSA approved the Skilled Person, [name of Skilled Person] on [date].

The Firm is responsible for paying the fees and related expenses of the Skilled Person
as agreed in the contract.

The Firm must inform the FSA of the direct cost of commissioning the Report once
completed. Please note that this cost should exclude charges for any work that is
undertaken by the Skilled Person which is outside the scope of the Report. The
Skilled Person must notify the FSA within seven days of any material changes
(greater than 10%) in the estimated cost of commissioning this Report.








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ANNEX 1

Firm responsibilities

1. The FSA has found evidence of poor practices in the Firm’s sale of Interest Rate
Hedging Products to private customers and retail clients and is concerned that
such practices, combined with product complexity, customer sophistication and
sales incentives may have led to poor outcomes for customers.

2. The FSA and the Firm have agreed that the Firm will carry out a proactive redress
exercise and past business review as set out in the Undertaking (as amended) and
the Exchange of Letters. The following is a summary. The Firm is required to:

• provide proactive redress to all Customers who do not meet the Sophisticated
Customer Criteria and to whom the Firm sold Structured Collars on or after 1
December 2001 (“Category A Business”);

• carry out a past business review of all sales of Interest Rate Hedging Products
(except Structured Collars and Caps) to, and provide fair and reasonable
redress, where appropriate, to, all Customers who do not meet the
Sophisticated Customer Criteria and to whom the Firm such Interest Rate
Hedging Products on or after 1 December 2001 (“Category B Business”); and

• carry out a past business review of all sales of Caps to, and provide fair and
reasonable redress, where appropriate, to, all Customers who do not meet the
Sophisticated Customer Criteria and to whom the Firm sold such Interest Rate
Hedging Products on or after 1 December 2001 (“Category C Business”) if,
during the period of the Skilled Person’s appointment, the Firm receives a
Complaint from such a Customer about such a product,

together, the “proactive redress and past business review exercise”.

3. In doing the above, the Firm’s responsibilities will include designing a
methodology that will enable it to fulfil its responsibilities to Customers of the
Firm’s Category A, B and C Business.

4. In addition, the Firm:

• will not (except in exceptional circumstances) foreclose on or adversely vary
the existing lending facilities of Customers without giving prior notice to the
relevant Customer and obtaining their prior consent, until the Firm has issued
a final redress determination and, if relevant provided redress to the Customer;
and

• will consider on a case by case basis whether to suspend the payments payable
by a Customer under an Interest Rate Hedging Product pending the outcome
of the review of the sale to the Customer, where the Firm determines financial
distress to be present.



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Overall objectives of the Skilled Person Report

5. The Skilled Person is to provide an independent review of all aspects of the
proactive redress exercise and past business review, as described in section 3
(paragraphs 3.1 - 3.18) of the Undertaking (as amended) and the Exchange of
Letters, as well as independent oversight of the application of that approach.

6. The Skilled Person is to provide independent oversight of the approach and
methodology implemented by the Firm during the proactive redress exercise and
past business review, as well as independent oversight of the application of that
approach. The Skilled Person is also to confirm the appropriateness of redress
proposed for Customers as contemplated in the Undertaking (as amended) and the
Exchange of Letters.

7. The Skilled Person is to provide independent oversight of the Firm’s approach to
the undertaking it has given in relation to not foreclosing on Customers or
adversely varying their existing lending facilities without giving the Customer
prior notice and obtaining their prior consent, as well as providing independent
oversight of the application of that approach.

8. The Skilled Person is to ensure the appropriateness of the Firm’s procedures for
considering on a case by case basis whether to suspend the payments payable by a
Customer under an Interest Rate Hedging Product.




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Proactive redress exercise and past business review

9. The Firm’s methodology, updated to reflect the changes in the Undertaking (as
amended) and as agreed in the Exchange of Letters (the “revised methodology”),
will be reviewed by the Skilled Person to ensure it will achieve the requirements
of the Undertaking (as amended) and the Exchange of Letters.

10. The Skilled Person’s review of the methodology should include, but not be limited
to assessing and ensuring:

• For Relevant Category B Customers and Customers of Category C Business
who have complained, the methodology will appropriately assess compliance
of each sale of the Interest Rate Hedging Products with the Regulatory
Requirements, taking into account, in particular, the Sales Standards;
• The appropriate classification of each Customer of Category A and B Business
and Customers of Category C Business who have complained, both by product
and Sophisticated Customer Criteria;
• The appropriateness and accuracy of the Firm’s management information to be
produced by the Firm;
• The appropriateness of the Firm’s governance, including the appropriateness
of any committee or management structure put in place to monitor the
implementation and progress of the review;
• The appropriateness of all of the Firm’s engagement with Customers;
• The appropriateness and content of Customer communications, including
letters and telephone scripts used and the Firm’s policies for dealing with non-
respondents;
• The appropriateness of the Firm’s approach to evidence gathering;
• The appropriateness of the Firm’s approach to calculating redress; and
• The Firm will take into account all individual circumstances of the Customer.

11. The Skilled Person will, in relation to each sale, assess whether the revised
methodology has been applied appropriately by the Firm, including those cases
reviewed by the Firm and Skilled Person in the pilot exercise required by the 2012
Notice. In assessing whether the revised methodology has been appropriately
applied, the Skilled Person will also review, and/or monitor all of the Firm’s
engagements with each Customer. The Firm needs to offer each Customer the
opportunity to have the independent Skilled Person present during any meetings
or telephone calls with that Customer. The Skilled Person must be available to
attend.

12. Where the Customer declines to have the independent Skilled Person present
during such meetings or telephone calls, the Firm will make best endeavours to
ensure that such discussions are recorded. The recordings will be made available
to the Skilled Person as part of their review.

13. The Firm should not proceed with the full review until the Firm and Skilled
Person have confirmed that the revised methodology reflects the Undertaking (as
amended) and the Exchange of Letters and the FSA is satisfied that this is the
case.


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Other issues

14. The Skilled Person is also required to assess and ensure the appropriateness of:

• the Firm’s approach to the undertaking it has given in relation to foreclosure,
namely, that it will not (except in exceptional circumstances) foreclose on or
adversely vary the existing lending facilities of Customers without giving prior
notice to the relevant Customer and obtaining their prior consent, until the
Firm has issued a final redress determination and, if relevant provided redress
to the Customer, and
• (in any case where the firm proposes to rely on exceptional circumstances to
foreclose on or adversely vary the existing lending facilities of Customers
without giving prior notice to the relevant Customer and obtaining their prior
consent) the application of that approach prior to the Firm taking any steps to
foreclose on or adversely vary the existing lending facilities of any Customer.

15. In particular, in any case where the Firm proposes to foreclose on a Customer or
adversely varies the Customer’s existing lending facilities in circumstances where
the Customer has not received prior notice and has not given prior consent, the
Skilled Person will review the case to confirm that there are exceptional
circumstances.

16. The Skilled Person is also required to assess and ensure the appropriateness of the
Firm’s procedures for considering on a case by case basis whether to suspend the
payments payable by a Customer under an Interest Rate Hedging Product.


Reporting

17. The Skilled Person will provide the following:

• Management information on progress of their review on a weekly basis;
• A Report on a monthly basis, summarising progress and any issues identified
to date;
• A tripartite meeting with the Firm and the FSA on a monthly basis; and
• A final Report.

18. The final Report should be concise and should be structured as follows:

• An executive summary of the Report’s findings;
• An outline of the work that was undertaken to fulfil the requirements of the
scope of the Report, including for each review conducted by the Skilled
Person;
• The nature and extent of documentation examined;
• An outline of the Skilled Person’s assessment of the proactive redress exercise
and past business review methodology;
• The outcomes for the Customers of the Firm’s Category A, B and C Business.
For example, key information on how many cases were due redress, the
amount of redress and why the redress was due;

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• The Skilled Person’s assessment of the matters identified at paragraphs 14 to
16 above (foreclosure in ‘exceptional circumstances’ and the case-by-case
consideration of a suspension of the payments payable by a Customer under an
Interest Rate Hedging Product);
• Whether the Skilled Person found it necessary to conduct further work not
originally planned in order to meet the Report requirements and, if so, the
nature and extent of such further work;
• Details of any other issues identified;
• Any lessons learned from the assessment of each of the issues requiring
examination; and
• A breakdown of the total cost of the Report.


Interaction with the FSA

19. The Skilled Person will take into account the tripartite arrangement between the
Firm, the Skilled Person and the FSA such that the FSA has access to all source
material, documents and working papers of the Skilled Person in relation to this
review, with no liability for costs.

20. Any problems that impact on the ability of the Skilled Person to complete the
Report within the deadline agreed should be brought to the attention of the FSA as
soon as possible. Openness and collaboration are encouraged during this process.
Any differences of opinion between the Skilled Person and the Firm should be
brought to the attention of the FSA as soon as possible.

21. The Skilled Person will report to the FSA on any other matters or issues that come
to its attention that they consider the FSA should be made aware of in a timely
manner.

22. The FSA will inform the Skilled Person when additional information important to
the review arises through bilateral or trilateral meetings or other communications.