BANKS FOUND GUILTY OF MIS-SELLING to SMES (01/07/12)
Four of the UK’s largest banks face hefty fines after the financial watchdog found them guilty of mis-selling specialist insurance to small and medium-sized businesses (SMEs).
Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland have agreed to compensate customers after the Financial Services Authority found “serious failings” in the sale of interest rate hedging products.
The FSA said it believed the mis-selling had had a “severe impact on a large number of these 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. During the period 2001 to date, banks sold around 28,000 interest rate protection products to customers.
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 introduced a degree of interest rate speculation.
An FSA investigation found poor sales tactics including failing to provide sufficient information on the hefty exit costs involved, failure to gauge the customers' understanding of risk and found rewards and incentives were a driver of these practices.
Not all businesses will be owed redress, but for those that are, the exact amount of compensations will vary from customer to customer, but could include a mixture of cancelling or replacing existing products, together with partial or full refunds of the costs of those products.
Martin Wheatley, of the organisation's conduct business unit, said: "For many small businesses this has been a difficult and distressing experience with many people's livelihoods affected."
He added that the bosses of the banks, including Barclays chief executive Bob Diamond, had given a personal assurance they would sort out the problems caused.
“They have also committed that, except in exceptional circumstances, they will not foreclose on or vary existing lending facilities without the customer’s prior consent,” added Mr Wheatley.