FSA: 90% of interest-rate swaps were mis-sold

A pilot review of sales of interest rate hedging products by major banking groups to small businesses has confirmed initial findings of mis-selling in this area, with over 90 per cent of 173 sales not complying with at least one regulatory requirement according to the regulator.

The Financial Services Authority said a significant proportion of the 173 interest-rate swap sales reviewed are likely to result in redress being due to the customer. Barclays, HSBC, Lloyds and Royal Bank of Scotland will not begin a full review of their sales.

The watchdog did, however, caution that the small number of typically more complex cases in the sample may not be representative of all IRHP sales.

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In June 2012, the FSA announced that it had found serious failings in the sale of these products, following which banking groups agreed to conduct an initial review.

As a result of this preliminary probe, the FSA has revised the eligibility criteria to ensure that the review is focused on those small businesses that were unlikely to understand the risks associated with those products.

It said this might include, for example, bed and breakfast businesses which would previously have been ineligible due to their large numbers of seasonal workers.

Where redress is due, the FSA has reiterated the fundamental principle that it must be fair and reasonable for individual customers.

Martin Wheatley, chief executive designate of the Financial Conduct Authority, said: “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.”

The FSA has also been reviewing sales of IRHPs by Allied Irish Bank, Bank of Ireland, Clydesdale and Yorkshire banks, Co-Operative Bank and Santander UK. The FSA aims to be able to confirm that these banks can launch their reviews by 14th February.

Customers of all these banks will be directly contacted by the banks and will not need to involve other advisers.