Banks mis-sold more than 90pc of rate swaps, says FSA

More than 90pc of the complex interest rate derivatives sold by banks to small businesses could have been mis-sold, according to the findings of a review by the Financial Services Authority, reports The Telegraph.

The FSA said that its analysis of 173 sales of interest rate hedging products to SMEs by Britain’s four largest banks found that 90pc “did not comply with one or more of our regulatory requirements”.

Martin Wheatley, chief executive designate of the Financial Conduct Authority, accused lenders of selling businesses “absurdly complex products” and said many customers could now expect compensation from their banks.

“This marks significant progress in our review of these products. We believe that our work will ensure a fair and reasonable outcome for small and unsophisticated businesses,” said Mr Wheatley.

Barclays, Lloyds Banking Group, HSBC and Royal Bank of Scotland have been given the go-ahead to launch a redress scheme for mis-selling victims, with seven smaller lenders to begin compensating customers from February 12.

Banks have been given six months to complete their reviews of mis-selling, though the regulator said that lenders with large numbers of customers could take up to 12 months.

In its report on swap mis-selling the FSA said a “significant proportion” of businesses sold the products could expect some form of compensation. More than 40,000 swap products were sold to SMEs over the last decade, according to the regulator’s latest estimate of the scale of the scandal.

Lenders have already set aside more than £700m against potential swap mis-selling claims, with Barclays making the largest provision so far of £450m.
However, with the FSA’s findings these provisions are likely to be increased, with the total bill expected to reach at least £1.5bn, though many derivatives experts believe the final cost could easily exceed £10bn.