Member Article

“Severe impact” of bank mis-selling on SMEs

The Financial Services Authority has found “serious failings” in the sale of insurance products to SMEs.

The FSA believes such failings have had a severe impact on a large number of businesses, following its investigation into the length of time mis-selling took place.

In order to ease the problems, the independent body has reached agreement with Barclays, HSBC, Lloyds and RBS to provide “appropriate redress” where mis-selling has occurred.

The banks will need to provide redress directly for those customers affected, and have agreed to stop marketing interest rate structured collars to retail customers.

Interest rate hedging products can be appropriate to protect customers against the risk of interest rate movements.

The products range in complexity from 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.

The FSA has found a range of practices it deems “poor” including: poor disclosure of exit costs; failure to ascertain the customer’s understanding of risk; non-advised sales straying into advice; over-hedging, where the amounts and duration did not match the underlying loans; and rewards and incentives being a driver of these practices.

Martin Wheatley, managing director of the Conduct Business Unit, said: “For many small businesses this has been a difficult and distressing experience with many people’s livelihoods affected.

“Our work has focused on ensuring a swift outcome for these businesses that form such an important part of the economy.

“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.

“I am particularly pleased that the CEOs: Bob Diamond, Brian Robertson, Antonio Horta Osorio and Chris Sullivan have provided a personal assurance that they will have responsibility for oversight of this work and will ensure that complainants are treated fairly.

“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.”

Dan Wagner, tech entrepreneur and CEO of Powa Technologies has been campaigning for more support for smaller companies.

He said, “It is a tragedy that small companies have been taken advantage of. Loans and bad debts are often the one single reason that small companies go out of business.

“We need to have more responsible lending and the products that surround those loans to help small businesses to survive and grow in difficult market conditions.”

This was posted in Bdaily's Members' News section by Tom Keighley .