Banks hit by fresh mis-selling scandal
Britain’s big four high street banks could be forced to pay millions of pounds in compensation to small businesses, after the main City regulator found they mis-sold complex insurance products in more than 90% of cases.
The Financial Services Authority said the banks will conduct a review of small business accounts to determine the extent of the mis-selling, which dates back to 2001.
As many as 40,000 so-called interest rate swaps could have been mis-sold to small businesses in the latest scandal to hit the banking industry.
The regulator has already forced banks to pay more than £10bn in compensation and admin costs following the mis-selling of payment protection insurance, and is conducting an inquiry into the full extent of the Libor interest rate setting crisis.
MPs and peers on the Banking Standards Commission attacked banks yesterday for maintaining sky-high bonus payments to senior staff, despite the succession of mis-selling scandals that have cost customers billions of pounds and undermined the industry’s reputation.
Lord Lawson, a former chancellor of the exchequer, said on the BBCs Newsnight programme that it had become obvious from the commission’s review that banks in the years before the financial crash had generating most of their profits from products designed to help clients avoid tax.
Shadow business secretary Chuka Umunna welcomed the ruling, which he said underlined the need to reform the industry. “The degree to which swap mis-selling to SMEs was found to have occurred underlines the need for a cultural change in the banks,” he said.
The FSA said it found that, in the 173 test cases examined in the study, more than 90% of sales did not comply with at least one or more regulatory requirements.
Three of Britain’s biggest banks – Barclays, HSBC and Royal Bank of Scotland – have already set aside about £630m to cover the cost of potential mis-selling claims, and the upcoming round of annual results will reveal the latest provisions in the industry. Lloyds has yet to make a statement on potential costs.
Allied Irish Bank, Bank of Ireland, Clydesdale and Yorkshire banks, Co-operative Bank, and Santander will hear in the next couple of weeks whether they must also conduct reviews.
The FSA said a significant proportion of the cases will result in compensation being due to the customer.
The products were supposed to protect firms against rising interest rates and were marketed as low-cost protection against rising interest rates, often as a condition of a business loan. But left them facing huge bills if rates fell. Firms also faced hefty penalties to get out of the deals, which many said they were not told about.
Banks have been working with the FSA to begin the compensation process and have launched pilot reviews of some 200 alleged cases to assess if mis-selling took place and potential compensation.
Martin Wheatley, chief executive designate of the Financial Conduct Authority, which will take over from the FSA later this year, said: “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.
“Small businesses will now see the result of the review as the banks look at their individual cases. 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. These will determine whether there were failings in the sales process and, if so, whether redress is due.”
-overall”>
Rating
z