February 01, 2013
The Financial Services Authority (FSA) has found evidence of widespread mis-selling of interest rate hedging products (IRHPs) to small firms following a pilot review. As a result, Barclays, HSBC, Lloyds and RBS will start a full review of their sales of the products to small businesses and set about providing redress.
The FSA looked at evidence of individual sales of IRHPs, together with the bank's and an independent reviewer's assessment of each file. It also took evidence from customers. In all, the FSA looked at 173 sales to "non-sophisticated" customers and found that over 90% of the sales did not comply with at least one or more regulatory requirement.
Now the four banks will review individual sales and provide redress to customers based on principles outlined in the FSA report. The FSA said a significant proportion of the 173 cases reviewed are likely to result in redress being due to the customer.
The FSA has also been reviewing sales of IRHPs by Allied Irish Bank (UK), Bank of Ireland, Clydesdale and Yorkshire banks, Co-Operative Bank and Santander UK. The FSA aims to be able to confirm that these banks can launch their reviews by 14 February.
Martin Wheatley, CEO designate of the Financial Conduct Authority, said: "Where redress is due, businesses will be put back into the position they should have been without the mis-sale. But it is important to remember that this review is firmly focused on the particular circumstances of each sale."
Phil Orford, chief executive of the Forum of Private Business (FPB), said: "To see that 90% of the FSA's sample review of sales broke regulations is shocking, but unsurprising. Products forced on customers to 'protect' them have in fact caused stress, debt and closure for many small businesses. This is another epic fail by the banks, but one they must put right – and quickly too."
John Walker, national chairman, Federation of Small Businesses (FSB), said: "This is alarming, but it will come as a relief to the thousands of small firms who have been anxiously waiting for an outcome on this very complex situation. However, we are concerned that the FSA has not mandated that all payments are suspended when a firm enters into the scheme – we would like the banks to do this for their customers. There is also a lack of clarity on what full redress looks like."