The FSA is reviewing the sale of interest rate swaps following pressure from MPs due to concerns the products were missold.
The swaps are designed so that banks cover the cost of increased payments in the event of interest rate rises while the customer has to pay the bank in the event that rates fall. Many of the products were sold between 2006 and 2008, before bank rate fell to its current historic low.
Last month, lawyers representing clients who allege they were missold the swaps told a group of 40 MPs that clients were not warned they would face penalties if rates fell.
Last month, Money Marketing revealed the 40 MPs have written to the Treasury select committee asking it to launch an inquiry into the issue. They also agreed to table a request for a backbench business debate.
Last week, Treasury financial secretary Mark Hoban confirmed the regulator will review the sale of interest rate swaps in a response to a parliamentary question from Labour MP Jim Cunningham.
Cunningham says some businesses in his constituency are facing bankruptcy as a result of purchasing the swaps. He says: “They do not have the resources to litigate against the banks. What is needed is for banks to come clean and release details of the number of business affected by the misselling of IRSAs.”
The response says: “The FSA is currently carrying out a review of this issue. As part of this, the FSA is considering additional information from the small businesses that purchased these products, to help them better quantify the size of the issue and to establish whether any banks have failed to comply with their obligations under the FSA conduct of business sourcebook.”
An FSA spokesman says: “The work we are doing is to find out more about the products sold, how they were sold and whether they met customers’ needs. We have already received some detailed information from banks in connection with their sales of interest rate swaps, which we are considering, and we have also spoken to a number of customers who have been affected. If we find widespread evidence of breaches or misselling we will take appropriate action.”
The spokesman says the regulator “expects to make its findings public in due course”.