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Retail banks may be banned from selling interest rate swaps

London UK Thames Parliament 480

The Government is considering banning ring-fenced retail banks from selling derivative products such as interest rate swaps to consumers in light of recent misselling scandals.

In June, Barclays, HSBC, Royal Bank of Scotland and Lloyds Banking Group all agreed to pay redress after the FSA found “serious failings” in the way interest rate swaps were sold.

Deputy prime minister Nick Clegg and business secretary Vince Cable have called for derivative products to be removed from retail banks to protect small businesses.

The draft banking reform bill, published last week, states: “Recent events involving the misselling of derivative products have demonstrated the need for robust conduct, as well as resolvability safeguards – an area that the Parliamentary Commission on Banking Standards will be investigating.”

Chancellor George Osborne has asked Parliamentary Commission on Banking Standards chair Andrew Tyrie to consider whether ring-fenced banks should be able to offer simple derivatives to their customers. The commission will report back on 18 December with its final conclusions.

The Government will consider the advice of the commission and act in secondary legislation when the final bill is published in the new year.

Bloomsbury Financial Planning partner Jason Butler says it is right that regulation is toughened up due to the complexity of the products involved.

He says: “Anything that will stop banks fleecing customers is a good thing. There is an asymmetrical relationship between banks, which understands these complex products, andcustomers who do not.”

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