Member Article

FSA call hedging products review

The Financial Services Authority (FSA) has ordered the big four high street banks to begin a review of all interest rate hedging products.

A recent investigation by the FSA looked at 173 sales of the products to “non-sophisticated” customers from across the four banks, and found that 90% of cases did not comply with one or more of the regulatory requirements.

Business customers were deemed to be sophisticated if they had a turnover of more than £6.5m or more than 50 employees.

The FSA expect the banks to complete their reviews within six months, although in cases of widespread mis-selling this may take up to 12 months.

Chief executive of the British Bankers’ Association, Anthony Browne, said: “We are pleased that the FSA has reached agreement with the major banks to provide fair and reasonable redress for businesses affected. Since the problem was identified the banks have all worked proactively with the regulator and independent experts so that the issue can be resolved as swiftly as possible.

“The announcement today will give clarity to businesses and will enable the banks to put in place the steps needed to resolve each case for customers. Where customers have suffered unfairly the banks have all agreed that they will put it right.

“Banks will be contacting those companies affected shortly, prioritising those with the greatest need. Any business which is currently facing financial distress and is seeking a suspension of payments should get in touch with their bank immediately.”

John Walker, National Chairman, Federation of Small Businesses, said: “The FSA’s report into mis-selling highlights the seriousness of the situation finding that 90 per cent of loans were mis-sold. This is alarming, but will come as a relief to the thousands of small firms who have been anxiously waiting for an outcome on this very complex situation. We welcome the work that the FSA has done to date and that it has listened to our concerns around how it defines a sophisticated business.

“However with the pilot showing such a significant level of mis-selling we are concerned that the FSA has not mandated that all payments are suspended when a firm enters into the scheme – we would like the banks to do this for their customers. There is also a lack of clarity on what full redress looks like, with banks determining what constitutes consequential losses, and how an appeals process will work.

“What is clear is that firms will need expert support when they enter the scheme to ensure they receive the redress they deserve. Now the pressure is on the banks to contact its customers. They must do so quickly and decisively to draw a line under this matter and bring the situation to a close. This review only covers the first four banks, with the report into the remaining seven due in the coming weeks. The FSB will continue to fight for other firms caught up in this scandal.”

Matthew Fell, CBI Director for Competitive Markets, called the mis-selling “unacceptable” and suggested lessons could be learnt from the “protracted affair” of PPI resolution measures.

He said: “Any small business that has been mis-sold insurance products should be swiftly and fully restored to the position they would have been without the mis-sale.”

Phil Orford, the chief executive of the Forum of Private Business was damning of the banks and said they had been “no friend” of small business in recent years.

He said: “We respect the time needed for banks to conduct a thorough review but whilst these are carried out they must ensure businesses are not paying vast sums of money that threaten their very existence.

“If a business feels it is in financial distress due to one of these arrangements, it must request the suspension of the collection of swap payments pending the review. Ideally, banks will suspend all additional interest payments until completion of the review anyway.”

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