Clydesdale and Yorkshire in mis-selling talks with FSA

The Clydesdale and Yorkshire banks are the latest to be dragged into the watchdog's inquiry into the mis-selling of complex derivatives to small businesses.

The regional banks, owned by National Australia Bank, have confirmed they have held "discussions" with the Financial Services Authority over the issue but insisted this "does not mean that there has been any finding of mis-selling".

Britain's four biggest banks, Barclays, HSBC, Lloyds and Royal Bank of Scotland, have admitted mis-selling and could now be on the hook for hundreds of millions of pounds in compensation payments.

The derivatives, known as interest-rate swaps, were sold alongside loans ostensibly to protect small businesses against rising rates.

But they misfired when interest rates fell and left many firms facing crippling costs, which sent some to the wall.

The FSA has devised a compensation scheme to help firms which have suffered as a result of the mis-selling.

The review of Clydesdale and Yorkshire's business raises the possibility that still more banks could be dragged into the inquiry.

NAB has attempted to sell Yorkshire and Clydesdale but has never managed to find a buyer with which it can agree a price. Recently it announced plans that will see the banks retreating to their regional bases.

The watchdog is preparing to release more details of the mis-selling after facing criticism that its original document was too vague. While news of more banks being drawn in is significant, it is still thought that the majority of the mis-selling was done by the big four.