Banks urged to ‘stop passing the buck’ in mis-selling scandal

James Ducker, a former derivatives salesman who now advises companies, including firms in Yorkshire, who were mis-sold interest rates swaps (IRSAs), also called on the banking sector to “stop passing the buck” and make speedy compensation payments.

The banking industry is facing a huge compensation bill after a review of IRSAs sold to small businesses found that more than 90 per cent had been mis-sold. The Financial Services Authority (FSA) said a “significant proportion” of the cases that were the subject of the review were likely to result in compensation being due to the customer.

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. In many cases, the customer did not fully grasp the risks involved. They were marketed as low-cost protection against rising interest rates, often as a condition of a business loan.

But businesses such as bed and breakfasts and takeaway shops were left with colossal bills after the financial crisis caused interest rates to plummet.

The Federation of Small Businesses has claimed the scandal could cost 80,000 jobs. The FSA and banks have reached an agreement to provide “fair and reasonable redress” to any businesses that have been affected by the mis-selling of IRSAs. It is thought the total cost of compensating businesses who were victims of mis-selling could be as much as £1.5bn across the banking sector.

Mr Ducker, who is a director of Benchmark Treasury Pricing, said: “In order to restore their credibility, the banks need to say sorry, stop passing the buck, stop trying to explain away mistakes and simply admit them, pay out the compensation and move on.

“There is absolutely no doubt that further action should be taken. Not just as a punishment, but to prevent problems... The banks should be punished and the individuals who mis-sold these on purpose should at least have the FSA regulation taken away, if not worse. We need to reform the FSA, which they are doing, but I have seen nothing to suggest it will be any different in practice. We need to alter the way bank employees are paid, we need to alter the culture... but, without sounding draconian, unless the regulator has real teeth, and is able to police what is put in place, and has the backing of the law and the Government, then nothing will alter.”

A spokesman for the British Bankers’ Association said: “The banks have all worked with the regulator and independent experts to resolve the situation as swiftly as possible.

“The FSA’s recent announcement gives clarity to businesses and is enabling 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 facing financial distress and is seeking a suspension of payments should get in touch with their bank immediately.

“Every aspect of the banking industry has changed fundamentally since the global financial crisis. The banks have reduced cash bonuses by 77 per cent since the start of the crisis, and no longer pay commissions on sales but reward staff for meeting standards for customer service.

“Any mis-selling is unacceptable: banks are now focused on retraining staff and changing processes.”

The FSA declined to comment. It is due to be disbanded by the end of this year with its powers split between the Bank of England and a new, standalone Financial Conduct Authority.