View the article online at http://citywire.co.uk/money/article/a600462
Four major banks mis-sold to business customers for a decade
RBS, Barclays, HSBC and Lloyds will have to compensate business customers for the mis-selling of interest rate protection products over the past 10 years.
Four major high-street banks have been told by the City regulator to compensate business customers for mis-selling products designed to help hedge interest rates.
RBS (RBS.L), Lloyds (LLOY.L), Barclays (BARC.L) and HSBC (HSBA.L) have all agreed to provide compensation to business customers after the Financial Services Authority (FSA) found ‘serious failings’ in the sale of interest rate hedging products to small and medium-sized businesses.
The products can help protect bank customers against the risk of interest rate movements. They 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 sold 28,000 interest rate protection products to customers. Over the past two months the FSA has reviewed a significant number of these sales and spoken to 100 customers and found a host of failings that have had a ‘severe impact’ on businesses.
The failings include:
- Poor disclosure of exit costs
- Failure to ascertain the customers’ understanding of risk
- Non-advised sales straying into advice
- Over-hedging, where the amount and duration did not match the underlying loans
- Rewards and incentives being the driver of these practices
The banks will not only have to offer redress to companies to which it mis-sold the protection products, but will also stop marketing structured collars to retail customers.
The redress that each business will receive will vary, but could include a mixture of cancelling or replacing existing products with partial or full refunds on the cost of the products.
The redress exercise will be overseen by an independent reviewer at each bank.
Martin Wheatley, managing director of the FSA conduct business unit, said many people’s livelihoods had been affected by the mis-selling by the four banks.
‘Our work has focused on ensuring a swift outcome for these businesses that form such an important part of the economy.
‘I am pleased that Barclays, HSBC, Lloyds and RBS have agreed to do the right thing by their customers and offer redress or a review of past sales. These firms have responded to the need to provide a fair deal for customers by working with us.’
Wheatley added that the four chief executives of the banks have said they will oversee the work and ensure that ‘except in exceptional circumstances, they will not foreclose on or vary existing lending facilities without the customer’s prior consent’.
It is the second time this week Barclays has hit the headlines, after being hit with the largest ever FSA fine of £59.5 million and another £230 million from the US regulators and Department of Justice for making false submissions about its inter-bank lending rates to the rate setting committees for the London Inter-bank Offered Rate (Libor) and Euro Inter-bank Offered Rate (Euribor).
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- Royal Bank of Scotland Group PLC (RBS.L)
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- Lloyds Banking Group PLC (LLOY.L)
- HSBC Holdings PLC (HSBA.L)
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