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Home > Regulation > UK Regulation

Barclays hit again as FSA acts on rate hedging mis-selling

Regulator finds a range of “poor sales practices” to SMEs in the sale of interest rate hedging products by four mainstream banks.

By Donia O'Loughlin | Published Jun 29, 2012 | comments

The Financial Services Authority has announced that it has reached an agreement with banking groups Barclays, HSBC, Lloyds and Royal Bank of Scotland to provide appropriate redress after identifying mis-selling of interest rate hedging products to small and medium sized businesses.

The regulator announced today (29 June) that it has found “serious failings” in the sale of interest rate hedging products to some SMEs and this has resulted in a “severe impact” on a large number of these businesses.

The FSA said the banks will move to provide redress directly for those consumers that bought the most complex products. The banks have also agreed to stop marketing interest rate structured collars to retail customers.

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 (Libor).

The bank was fined £59.5m by the FSA and was also hit with $360m ($230m) worth of fines by US regulators over the activity.

In relation to the latest action, 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.

Following a two-month review 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.

The regulator said that for those that are owed redress this could include a mixture of cancelling or replacing existing products, together with partial or full refunds of the costs of those products.

This exercise will be scrutinised by an independent reviewer at each bank appointed under the FSA’s powers.

Martin Wheatley, managing director of the conduct business unit, 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.”

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