BRITAIN’S banks have paid out less than half of the £4.4bn ($6.7bn) set aside to cover the mis-selling of complex interest rate hedging products, according to data from the financial regulator.
The Financial Conduct Authority (FCA), which is led by chief executive Martin Wheatley, ordered banks to review nearly 30,000 cases in 2013 for possible mis-selling after finding serious failings in the way the products were sold.
The products were meant to protect smaller companies against rising interest rates, but when rates fell the companies had to pay extra charges, typically running to tens of thousands of pounds. They also faced hefty penalties to extricate themselves from the deals, which most said they were not aware of.
The FCA said that banks had so far paid out £1.8bn in compensation, and set a deadline for the end of March for claims. The sums set aside also covered the cost of having to terminate agreements early and having to employ more than 3,000 people to review the cases. The scheme has drawn sharp criticism from politicians and businesses who believe it is loaded in favour of the banks. In a parliamentary debate last December, MPs said it lacked transparency, was inconsistent and did not give victims a proper right of appeal. Banks dismissed more than a third of the cases, with customers deemed sufficiently sophisticated to have understood the products. About half of those left in the review were then offered alternative products rather than cash compensation. The mis-selling is one of a number of scandals involving British banks in the past five years, ranging from the attempted manipulation of foreign exchange and benchmark interest rates to the mis-selling of loan insurance. Royal Bank of Scotland faced more claims than any other bank in the scheme and has set aside £1.46bn for compensation.