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Spanish Supreme Court, in july of 2015, sentenced that the Bank behaviour had no possible justification or defense.
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Banks used to abnegate that the FX Loans where a derivative financial instrument and therefore the MiFID did not apply.
As it is well known, not many years ago, Spanish Banks became specialists in the “strengthening and reinforcement of their own resources by placing preference shares“. This so-called reinforcement, phrasing done by the lawyer Fernando Zunzunegui, managed to occur due to the fact that the banks “when selling these mentioned products; mentioned the advantages of reducing the interest rate, but “accidently must have forgotten to highlight the fact the major risk the clients assumed, due to the devaluation of the euro and the crisis this coin was suffering“.
The FX Loans correspond to a type of product, where the customer at the moment of aquiring it pays in euros, but the quoats and the amount that must be repaid is recomputed periodically in the currency by the client, and of course recommended by their bank. What came to be defined as the standard currency with these multicurrency mortgage where the Japanese yen and the Swiss-franc (although there were also other currencies taken into consideration). If the Banks would have done a euro rate forecast, and would have informed their clients, these would have been able to know that: Everytime the euro was heading down, in contrast with the choosen currencie, the result for the client was negative. This came to the extent that after having paid these fees for several years, many clients found themselves owing many more euros than at the begining of the morgage.
The Banks told their clients that everytime the currencie they choose was falling against the euro, they would be benefiting form the change. What they surprisingly did not consider necessary to tell them, was that this modification could, and most likely would, happen in the opposite sense, and would result in negative consecuences. In crisis, with major volatility in the currency market, the consequences came to be catastrophic. The houses in Spain were no longer worth what they were originally. There had been a significant devaluation of the price and the quantity and the amount to be reimbursed by the mortgage had increased. If the customers could not pay the share, the execution of the property does not cover the debt and they lost their houses whilst still oweing money to the bank, most of it due to the recieved loan.
Do to these abuses, the Supreme Court of Spain has had to adjudicate against the banks by considering the the FX Loans (called in Spain multicurrency morgages) were in fact a derivative financial instrument. Thanks to the consideration of the Supreme Court, justice was made for the clients whom had these products. For derivative financial instruments it is mandatory to apply the MiFID (Markets in Financial Instruments Directive).
The MiFID is the present european rule that was created to protect the investors and not the banking ententies. Under this scheme, banks must advise and evaluate the knowleadge and experience of the clients before offering the mutlicurrency mortages. Consequently, if the client prooves that it has the knowleadge to handle these products and therefor has a suitable profile, the bank must give them information and help them understand the risks of the currency market. No documents, testimonials or witnesses have been able to proove that the bank followed these mandatory steps.
The MiFID was created with the idea of introducing a unitary/single market and a common regulatory regime for the financial services of 31 states: the 28 whom are members of the European Union, and in 3 more states that belong to the European Economic Area being these Iceland, Norway and Liechtenstein. Two of the main objectivesare: Achieving and incresinf invesor protection (substituing the ISD (Investment Services Directive) and it´s functions) and to “promote equity, transparency, efficiency and integration of financial markets”.
The truth, despite banks denying it, is that these ententies have not complied with these clauses. In fact, they maintain the idea and defense that the mentioned bank products and the MiFID are not compatible. This “excuse” is no longer valid since it has been the Supreme Court itself what has sentenced that the implementation of the MiFID was necessary and mandatory. They were obliged to inform, advise and moderate there clients and none of the mentioned happened nor can be prooved to have happened. Thanks to the decision of the Supreme Court, the citizens, known to be the victims, can find justice and recover the money that they should have never lost. The multi-currency mortgages were included in the Securities Market Act in accordance with the provisions of Article 2.2 of the Act fundamentaly because it was considered by all instances a derivatice financial instrument and therefor required such protection.
