Barclays faces new scandal over interest rate swaps businesses were crippled by penalties

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Barclays is set to be dragged into a fresh banking scandal this morning as the City watchdog prepares to reveal the results of an inquiry into mis-selling of loans to small businesses.

With the bank already reeling from the impact of £290m in fines over its attempts to fix Libor interest rates, the Financial Services Authority's findings could not come at a worse time for the business and its increasingly embattled chief executive, Bob Diamond.

The inquiry covers sales of interest rate swaps to small business customers taking out loans.

Meant to protect against sudden sharp moves in interest rates, there has been concern that many such customers either did not know what they were signing up for or were forced into taking them out.

Some of those businesses have since gone to the wall because they have effectively been locked into cripplingly high rates despite Bank of England base rates falling to near zero as a result of the financial crisis and subsequent recession.

Derivatives such as rate swaps can carry sharp penalties that can badly hit those who hold them when rates move in the opposite direction to what is being protected against. Many small businesses took them out to protect against rate rises and so were caught short when rates fell.

It is understood that the FSA is likely to conclude that there was indeed mis-selling and banks may now have to write to small business customers offering reviews.

Those found to have been mis-sold very complex products may find themselves dealt with more quickly with compensation likely to be paid.

Barclays is by no means the only bank involved, with others, including Royal Bank of Scotland, also set to face criticism.

The FSA's statement – which was being finalised in consultation with banks yesterday – could not come at a worse time for Barclays and the wider banking industry.

The treatment of small businesses has been a particularly sore point since the financial crisis. Critics have argued that banks have failed to lend but British Bankers' Association have denied the claim.

The LIBOR interest rate-fixing scandal and the £290m fine for Barclays saw £3.7bn wiped off the bank's stock market capitalisation as investors dumped the shares