Britain’s big four banks suffered another blow today as they were ordered to review all interest rate hedging products they may have mis-sold to small businesses.
The Financial Services Authority said in a review of 173 cases it found the banks had broken at least one of its rules in more than 90 per cent of the sales.
The regulator said Barclays, HSBC, Lloyds and Royal Bank of Scotland must start reviewing all their interest rate hedging product sales and provide redress to customers who had been mis-sold such products.
While nowhere near the scale of payment protection insurance mis-selling, which has affected tens of thousands of customers and seen the banks set aside more than £10bn, the latest mis-selling scandal has proved a further embarrassment to the industry.
Experts believe as many as 40,000 small businesses were sold the complicated interest rate swaps which were meant to protect firms against sharp rises in interest rates but left them nursing large losses when rates fell from the end of 2008. Total compensation could reach £1.5bn.
Martin Wheatley, chief executive-designate of the Financial Conduct Authority, said: “Small businesses will now see the result of the review as the banks look at their individual cases. Where redress is due, businesses will be put back into the position they should have been without the mis-sale. But it is important to remember that this review is firmly focused on the particular circumstances of each sale. These will determine whether there were failings in the sales process and, if so, whether redress is due.”
Banks said they were relieved at the review because it made it much clearer what criteria should be used to determine whether businesses were unlikely to have understood the risks.
But Fraser Whitehead of legal firm Slater & Gordon, who has represented many firms claiming compensation, said: “The redress system continues to lack transparency. The banks are judge and jury, and there is no appeal process. Businesses are being asked to assume that the banks, which duped them in the first place, will now give them fair compensation.”
The British Bankers’ Association chief executive Anthony Browne said: “The announcement today will give clarity to businesses and will enable the banks to put in place the steps needed to resolve each case for customers. Where customers have suffered unfairly the banks have all agreed that they will put it right. Banks will be contacting those companies affected shortly, prioritising those with the greatest need. Any business which is currently facing financial distress and is seeking a suspension of payments should get in touch with their bank immediately.”
Another seven banks including Allied Irish and Santander UK are expected to launch reviews of mis-selling.Reuse content