Citywire for Financial Professionals
Stay connected:

View the article online at

Big four banks prepare for fresh mis-selling payouts

The compensation bill for mis-selling interest rate swaps to business customers is expected to hit £1 billion.

Big four banks prepare for fresh mis-selling payouts

Britain’s big four banks mis-sold over 90% of products to small businesses designed to help hedge interest rates, according to a damning review by the City regulator.

The banks will now review individual sales and provide redress to companies, the Financial Services Authority said, in statement that knocked banking shares this morning.

The FSA, which in June last year first announced the need for small firms to be compensated, emphasised that redress would be judged on the basis of each individual sale. One banking analyst, Ian Gordon of Investec, estimated that this could cost the banks around £1 billion.  

The review focuses on ‘non-sophisticated’ customers who were unlikely to have understood the risks associated with these products, which are designed to help against the risk of interest rate movements.

The hedges range in complexity from simple caps that fix an upper rate on a loan to more complex products, such as ‘structured collars’ which fix interest rates within a band but introduce a degree of interest rate speculation.

Since 2001 the four banks have sold 28,000 interest rate protection products to customers, with a sample 173 sales to ‘non-sophisticated’ customers scrutinised for the preliminary review reported today.

The FSA is expanding the category of business customers deemed not sophisticated enough to understand the risks of hedging products. It admitted its initial approach of excluding owners of substantial businesses meant farmers and bed and breakfast owners, for example, were wrongly labelled financially sophisticated.

A trade body representing small businesses expressed concerns about how the banks will compensate firms. ‘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,’ said John Walker, chairman of the Federation of Small Businesses. ‘There is also a lack of clarity on what full redress looks like, with banks determining what constitutes consequential losses, and how an appeals process will work.‘

The FSA is also reviewing sales practises by five other banks – Allied Irish, Bank of Ireland, Clydesdale and Yorkshire, Co-operative and Santander – and will provide an update in two weeks.

Today’s statement from the FSA comes after MPs yesterday accused the FSA of being too close to the big banks. Cross-party members of the Parliamentary Commission on Banking Standards said the regulator was not effective at regulating those at the top.

Banks are still embroiled in other scandals including the alleged rigging of Libor rates and the mis-selling of payment protection insurance (PPI).

Royal Bank of Scotland (RBS.L) shares were hit the hardest this morning, dropping 2.3% to 338p. Barclays (BARC.L) followed, down 1.5% to 297p, while Lloyds (LLOY.L) and HSBC (HSBA.L) dropped less than 0.5% to 50p and 721p respectively.

9 comments so far. Why not have your say?

joe stalin

Jan 31, 2013 at 12:43

Nothing like on the scale of PPI which the Government has used handsomely to make the banks hand over money to all regardless of whether merited or not. A different kettle of fish to prove that commercial entities did not know what they were getting into. But hey is this any worse than coppers selling information about accidents to the insurers and the motor trade or politicians expenses swindeling?

report this


Jan 31, 2013 at 13:16

Customers are only complaining because interest rates went down.

Little difference between these schemes and other types of insurance to cover you for an adverse situation.

I don't get my premiums refunded if I don't make a claim so why should these businesses?

report this

joe stalin

Jan 31, 2013 at 14:24

quite right the bank sold companies this insurance knowing full well that Mervin and his merry men would send interest rates into free fall. So it is the BOE's fault again for mismanaging the crisis. Merv knows this hence his vindictave attacks on the banking sector. You take out insurance in the knowledge that you dont want to claim against it but of course there is always a chance that you might. You take out house insurance in case your house burns down but of course you rather it did n't unless you are running some sort of shoddy furniture business in which case fire is just the thing to get rid olf some old friends you can't flog. The FSA is guilty of the same spite as Mervyn looking to keep nripping off the banking industry to make up for the debacle of three years ago in which the FSA amd the BOE made things considerable worse than they need have been. Not fit for purpose, they have failed the tax payer and the nation and they continue to do so still day in and day out.

report this

derek farman

Jan 31, 2013 at 15:43

Forgive me if I am incorrect, but banks were supposed to be there for us customers benefit and to support small businesses by providing loans and advice, not to rip them and us off.

Do we have a bunch of near criminals and spivs running them ? It would appear so as each revelation exposes a rotten core running through.

How can our smaller businesses survive when the rip off merchants are stacked against them

The customers wanted a product to smooth out interest rate escalation. Why sell them something which would crucify them if the rates went down, unless it was specifically designed to do just that.

Hopefully all the businesses will be compensated and those who their banks forced into administartion will be resurrected

report this

Anonymous 1 needed this 'off the record'

Jan 31, 2013 at 17:10

I agree with derek farman

British Banks have nearly become uninvestable in

PPI miss selling


and now interest rate swaps

However even after all this miss selling nobody seems to get punished

report this

Paul Scaife

Jan 31, 2013 at 17:42

Messrs Farman & Anonymous 1: banks are either mutual organisations or businesses and their aim is to make profits. They are not allowed to misrepresent or swindle. The question is whether the companies that bought into these products could have benefited by them. There is a case for ordinary folk being compensated for PPI, although far more were than warranted, but the whole point of private business is that competent people thrive and incompetent people go under.

report this

Anonymous 2 needed this 'off the record'

Jan 31, 2013 at 23:29

People like to feel sorry for banks, I spoke to an HSBC compliance manager a few yrs ago and he said they had been warning for yrs that they would have to stop selling ppi and they would get caught out, but due to their near 80% profit of the premiums they kept selling it.

Greed is always there if the rules allow it ( or lack of fsa enforcement ) and their is a lack of punishment, banks haven't been punished thus far, so for yrs they made a handsome profit, but why are we all so surprised?

Did dixons and all those companies selling extended warranties all massively over priced for massive profit get caught out, nope , was it a rip off? Yes

report this

joe stalin

Feb 01, 2013 at 08:47

British banks are not univestible per se it is the the politically motivated overseers and a lame Government that had made them so for the time being. Obama has hung BP out to dry for the good of the country while our lot are doing this to the banks. Unlike Obama our lot are too thick to work out that a vibrant finacial sector coughs up a lot of cash for HMRC. Had it not been for their ridiculous vindictive meddling shares in RBS and LLoyds could have been sold of years ago. Remember the US has managed to make money out rescuing the banks , car industry mortagages etc. telling is n't it. No chapos lets build another bloody railway to the Midlands yeah that makes alot of sense. Just don't ask the banks to finance it because they wont be able to.

report this

derek farman

Feb 01, 2013 at 10:26

PAUL SCAIFE..... but the banks in 90% of cases did misrepresent, which in my book means swindle.

Also to suggest that those who went under were incompetent is in many cases just not true. Many of those who failed or are struggling are very competent at what they do but may have been under the impression that the banks were there to help them and have been caught out by unavailability of loans or deals which even a competent person may have been caught by .

Don't forget these interest swaps have been going on for years and even the FSA hadn't picked up on them .

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire Guide to Investment Trusts

In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.

Watch Now

More about this:

Look up the shares

  • Royal Bank of Scotland Group PLC (RBS.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Barclays PLC (BARC.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • HSBC Holdings PLC (HSBA.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Lloyds Banking Group PLC (LLOY.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

More from us


Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add to your safe senders list so we don't get junked.


The Accumulator: FTSE see-saws on trade war fears

by Michelle McGagh on Jun 22, 2018 at 14:57

Sorry, this link is not
quite ready yet