December 10 2013 Latest news:
Wednesday, October 23, 2013
Small businesses that fell victim to the mis-selling of complex financial products will start to receive instalments from a £3billion compensation pot sooner than expected after some banks announced that payment would be made in two stages.
Some firms left out of pocket after being sold interest rate swaps have been waiting more than six months for the outcome of their case.
But now Royal Bank of Scotland and HSBC have announced that initial payments would be made to customers ahead of the final resolutions of claims.
Lloyds Banking Group said it would take similar action, but only on a case-by-case basis for customers in financial distress.
Earlier this month, the Financial Conduct Authority (FCA) said progress on compensation had been slower than expected so far. It said out of nearly 30,000 cases under review, just 32 offers had been accepted, totalling £2million.
However it expected the number of offers to increase “rapidly” over the next few months, with banks planning to send out more than 1,000 offers in October.
FCA chief executive Martin Wheatley said: “I welcome the moves to pay compensation in two stages.
“I’ve been urging the banks to consider what more they could do to ensure the small businesses affected by swap mis-selling get the compensation they’re owed as quickly as possible. The announcements over the last couple of days are a good first step.”
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 and many faced steep penalties to get out of the deals.
Banks have already put aside £3billion 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 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.
HSBC said compensation would now be paid months earlier than would have otherwise been the case under a single-payment process.
It said: “We have decided to introduce a two-stage payment process which provides an initial payment for those due redress, with any linked claim for consequential loss which the customer may wish to be considered looked at separately.”
RBS said: “RBS has today agreed with the FCA to split redress payments for all customers mis-sold swap products. Customers will receive redress money without having to wait for any potential consequential loss claims to be resolved.”
Lloyds said: “We have confirmed to the FCA that we will, on a case-by-case basis for customers in financial distress, offer to pay any redress due in relation to historical payments before any consequential loss claim has been outlined by the customer and agreed with them.
“We remain committed to communicating redress outcomes to all in-scope customers within the 12-month timeline set by the FCA.”