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Home > Regulation > UK Regulation

By Donia O'Loughlin | Published Jun 29, 2012

Barclays dismisses concern over FSA mis-selling review

Barclays has moved to mitigate the effects of its latest regulatory imbroglio over mis-selling of interest rate hedging products, publishing a statement that highlights only a small number of cases have gone to the ombudsman and that any remediation will “not be material”.

Earlier today (29 June), the Financial Services Authority announced it has reached an agreement with banking groups Barclays, HSBC, Lloyds and Royal Bank of Scotland to provide appropriate redress after it identified mis-selling of interest rate hedging products to small and medium sized businesses.

Martin Wheatley, managing director of the regulator’s conduct business unit and chief executive designate of the incoming Financial Conduct Authority, said: “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, and I welcome this outcome.”

However, in a stock exchange announcement today (29 June) Barclays said it had sold approximately 5,000 interest rate hedging products to small and medium-sized business customers since 2001 and that only 48 complaints had been ruled on by the Financial Ombudsman Service.

It added that nearly 90 per cent of these cases were decided in favour of Barclays. The bank said that the “financial impact of remediation costs will not be material to the group”.

Barclays pointed out that it has “co-operated fully” with the FSA throughout its thematic review of the sale of these products.

In its announcement earlier today, the FSA said it had found “serious failings” in the sale of interest rate hedging products to some SMEs following a two-month review and this has resulted in a “severe impact” on a large number of these businesses.

The FSA said that during the period 2001 to date, banks sold around 28,000 interest rate protection products to customers, many of which were small and medium-sized businesses.

Interest rate hedging products can protect bank customers against the risk of interest rate movements and can be an appropriate product when properly sold in the right circumstances, the FSA said.

These products range in complexity from comparatively simple “caps” that fixed an upper limit to the interest rate on a loan, through to the more complex derivatives such as “structured collars” which fixed interest rates within a band but introduce a degree of interest rate speculation.

The FSA said it had identified a range of “poor sales practices”, including poor disclosure of exit costs, non-advised sales straying into advice and over-hedging, where the amounts or duration did not match the underlying loans.

This is the second action by the FSA against Barclays in particular this week, after the bank was slapped with the largest fine the UK regulator has ever issued over its manipulation of the London interbank offered rate.

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