December 6 2013 Latest news:
Wednesday, September 4, 2013
Banks have begun compensating small businesses that were mis-sold complex financial products as offers of redress are sent out to thousands of firms impacted by the scandal.
The Financial Conduct Authority (FCA) confirmed that 10 firms have agreed compensation deals, totalling £500,000, after 210 offers were sent out, with another 1,700 due to go out shortly.
Lenders have identified more than 30,000 cases of potential interest rate swap mis-selling since the end of 2001 and the FCA said around 85% - more than 25,000 - sales are being reviewed.
It expects most customers to be informed of the result of their review and possible compensation by the end of the year.
Martin Wheatley, chief executive of the FCA, said: “With 85% of cases now under review, banks have made progress.
“But like the thousands of affected small businesses, we want to see redress paid quickly to those who have suffered loss as the result of mis-selling.”
Interest rate swaps are complicated derivatives that might have been sold as protection - or to act as a hedge - against a rise in interest rates without the customer fully grasping the downside risks.
They were marketed as low-cost protection against rising interest rates, often as a condition of a business loan.
But businesses as small as bed and breakfasts and takeaway shops were left with major bills after the financial crisis caused interest rates to slide.
Britain’s biggest banks have already put aside more than £2.5 billion to cover the cost of compensation, which comes on top of the industry’s mammoth bill for the mis-selling of payment protection insurance (PPI).
Businesses that have been mis-sold swaps will be offered compensation that aims to aim to put them back in the position they would have been in had there not been a mis-sale, plus interest of around 8% a year on top.
Some customers might be able to claim other losses caused by the mis-sale, although the FCA said complicated claims may take longer to process.
Anthony Browne, chief executive of the British Bankers’ Association (BBA), said: “Banks are working hard with the regulator to ensure that the process, which began four months ago, is completed as quickly as possible.”
He added: “The industry has suspended payments for businesses in financial distress pending completion of the review.
“If any other business is facing financial distress and wants a suspension of payments they should get in touch with their bank immediately.”
A review by the City regulator of nearly 200 pilot cases last year found that more than 90% of customers were victims of mis-selling by the four major players − Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland.
It found a similar level of mis-selling by the other banks involved in the scandal − Santander UK, Allied Irish Bank, Bank of Ireland, the Co-operative Bank and Clydesdale and Yorkshire banks − with a “significant proportion” likely to result in redress to the customer.
Banks have taken on 2,800 staff to work through the swap claims and have so far reviewed more than five million documents, according to the FCA.