High-street banks set to compensate businesses.
ANOTHER six high-street banks will begin the process of compensating small businesses that were mis-sold complex financial products, the City watchdog has confirmed.
The Financial Services Authority (FSA) said Santander UK, Allied Irish Bank, Bank of Ireland, the Co-operative Bank and Clydesdale and Yorkshire banks had agreed to adopt the same approach being used by the UK's biggest banks in offering redress to firms mis-sold interest-rate swaps.
An FSA review of 173 pilot cases revealed last month that more than 90% of customers were victims of mis-selling by the four major players - Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland.
The FSA said it found a similar level of mis-selling by the remaining six banks involved in the scandal, adding that a significant proportion would likely result in redress to the customer.
It is also talking to liquidators of the Irish Bank Resolution Corporation - formerly Anglo Irish Bank and Irish Nationwide Building Society - over the process of mis-selling compensation, given the group's collapse into liquidation last month.
Lenders are expected to face another hefty compensation bill in what marks the latest in a long line of recent mis-selling cases.
It is believed that as many as 40,000 interest rate swaps could have been mis-sold to small businesses since the end of 2001 after the FSA highlighted serious failings in the sale of the products last summer.
Barclays revealed earlier this month it was upping its swap mis-selling provisions to PS850m and said it sold around 4,000 interest rate swaps to small businesses of which around 3,000 were likely to be liable to potential mis-selling claims.
RBS has already set aside PS50m, but said late last month this would be meaningfully increased after the FSA's recent guidance on how to review cases.
Santander UK also said it uncovered a raft of former Alliance & Leicester small business customers that were potentially mis-sold interest rate swaps and has put by PS232m to cover costs, including compensation for mis-selling of interest rate swaps.
The British Bankers' Association (BBA) said: "The FSA's recent announcement gives clarity to businesses. Banks will be contacting those companies affected shortly, prioritising those with the greatest need.
"Any business currently facing financial distress and is seeking a suspension of payments should get in touch with their bank immediately."
Interest rate swaps are complicated derivatives that might have been sold as protection, or to act as a hedge, against a rise in interest rates without the customer fully grasping the downside risks.
They were marketed as low-cost protection against rising interest rates, often as a condition of a business loan.
But businesses as small as bed and breakfasts and takeaway shops were left with major bills after the financial crisis caused interest rates to slide.
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|Publication:||The Journal (Newcastle, England)|
|Date:||Feb 15, 2013|
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