The FSA has announced that Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland are to review the full extent of misselling of interest rate swap products to small businesses.
In June the regulator said it had found serious failings in the way banks sold interest rate swap products. The four banks have agreed to work on reviewing individual sales and to pay redress to customers following a pilot review of sales carried out by the banks and independent reviewers.
In its initial findings, the FSA reviewed 173 sales of interest rate swap products and found that over 90 per cent of sales did not comply with at least one regulatory requirement. The regulator says a “significant portion” of these cases are likely to result in customer redress, but adds the sample relates to more complex cases which may not reflect interest rate swap sales across the board.
The FSA has set out the review should focus on small businesses who were unlikely to understand the risks associated. Businesses that were within scope last June, such as small subsidiaries of multi-national corporations and special purpose vehicles, have now been excluded from the review.
Allied Irish Bank (UK), Bank of Ireland, Clydesdale and Yorkshire Banks, The Co-operative Bank, and Santander UK have also had their interest rate swap sales reviewed. The FSA expects to confirm these banks should start their own full reviews by 14 February.
Financial Conduct Authority chief executive designate Martin Wheatley says: “This marks significant progress in our review of these products. We believe our work will ensure a fair and reasonable outcome for small and unsophisticated businesses.”
Interest rate swaps are designed to protect consumers against increases in interest rates.
In July Money Marketing reported the case of Mike Chadwick, who was sold an interest rate swap by Lloyds in 2007. At the the time he was paying monthly payments of £8,000 for the product and facing exit penalties of up to £800,000 on a £2.3m loan.
British Bankers’ Association chief executive Anthony Browne says: “We are pleased the FSA has reached agreement with the major banks to provide fair and reasonable redress for businesses affected. Since the problem was identified the banks have all worked proactively with the regulator and independent experts so that the issue can be resolved as swiftly as possible.
“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.”