FSA report finds banks mis-sold 90 per cent of rate swaps and orders review

A study from the Financial Services Authority has ordered high street banks including Barclays, Lloyds, HSBC and RBS to review interest rate hedging products.

A study from the Financial Services Authority has ordered high street banks including Barclays, Lloyds, HSBC and RBS to review interest rate hedging products.

Following the mis-selling of interest rate hedging products to some UK businesses, a report from the Financial Services Authority (FSA) has called on banks to act.

The FSA says that RBS, Lloyds, Barclays and HSBC will now seek to identify and provide redress to all customers affected.

The dispute emerged after banks made small business customers, including care home providers, take out hedging products as a pre-condition to receiving a loan.

In June 2012, the FSA announced that it had found what it described as ‘serious failings’ in the sale of interest rate hedging products.

It then went on to examine the pilot review of sales carried out by banks and independent reviewers. The FSA says that evidence from customers has been ‘very important’ in assessing sales.

Some 173 sales to ‘non-sophisticated’ customers were looked at and the FSA finds that 90 per cent of those did not comply with at least one or more regulatory requirement.

It also discovered that a ‘significant’ proportion of the 173 examples are likely to result in redress being due to the particular customer.

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Martin Wheatley, CEO designate of the Financial Conduct Authority, comments, ‘Small businesses will now see the result of the review as the banks look at their individual cases. Were 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 his 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.’

The FSA also says that its pilot has enabled it to consider which principles should govern the review. It has now revised the eligibility criteria to ensure that the review is focused on those small businesses that were unlikely to understand the risks associated with those products: such as bed and breakfast businesses.

John Walker, national chairman for the Federation of Small Businesses, says that the finding that 90 per cent of loans were mis-sold is ‘alarming’ but will come as a relief to the firms which have been waiting for an outcome.

‘With the pilot showing such a significant level of mis-selling we are concerned that the FSA has not mandated that all payments are suspended when a firm enters into the scheme – we would like the banks to do this for their customers,’ Walker adds.

Also commenting on the FSA’s review, Alison Loveday, manning partner at law firm Berg, says, ‘This is a fair assessment of the situation from the FSA and its findings reflect what we have seen through the businesses we are advising.

‘A big concern remains the length of time it has taken to get to this point and how long it will take to process what are inevitably very complex claims. Since the FSA’s initial findings, thousands of businesses have been pushed to the wall and others have been effectively turned into ‘zombies’ which can barely survive because of huge interest rate swap payments.’

Hunter Ruthven

Bernard Williamson

Hunter was the Editor for GrowthBusiness.co.uk from 2012 to 2014, before moving on to Caspian Media Ltd to be Editor of Real Business.

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