Faster payouts to SMEs in selling scandal

Britain’s biggest banks have so far paid out less than 10 per cent of the £3.75bn they have set aside to compensate small firms mis-sold interest rate hedging products.

The Financial Conduct Authority (FCA) said that £306m had been paid out by Britain’s biggest four banks – Lloyds Banking Group, Royal Bank of Scotland, Barclays and HSBC – by the end of January. That compared with £159m at the end of December.

The mis-selling of complex financial products is one of a number of scandals facing the UK banking sector, that range from problems in consumer finance to interest rate rigging in global financial markets. The latest payments come on top of more than £20bn set aside by the banks to compensate customers mis-sold loan insurance.

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The interest rate hedging products were designed to protect smaller companies against rising interest rates, but when rates fell, they had to pay large bills, typically running to tens of thousands of pounds. Companies also faced penalties to get out of the deals, which many said they had not been told about.

“Redress is now rapidly flowing to small businesses,” Clive Adamson, the FCA’s director of supervision said yesterday. The FCA had ordered banks to begin paying compensation last May after saying there were serious failings in the way they were sold.

It said that all four banks were on track to complete the compensation process within a year of the scheme starting. It urged firms that had not yet agreed to have their case reviewed in the scheme to do so. There are 18,700 firms that have so far agreed with banks to have their cases reviewed.

Altogether, 2,092 firms had accepted compensation or alternative products, up from 1,040 at the end of December. In 1,741 of the cases, banks tore up the arrangement and paid cash compensation. In the remaining 351 cases, businesses have been offered alternative products. In 372 cases, the review found no compensation was required.

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The average payout per offer of compensation stood at £146,000 at the end of January, less than the £152,500 average at the end of December. The FCA data showed differing rates of progress in dealing with cases between the banks. RBS has told customers the outcome of the review in 2,429 cases, compared with 1,688 at HSBC, 1,041 at Barclays and 819 at Lloyds.

Both RBS and Lloyds have increased the amounts they have set aside for compensation in the past two weeks. RBS has more claims under review than its big three rivals combined.

It is assessing 9,039 cases, compared with 3,315 at HSBC, 3,250 at Barclays, and 1,756 at Lloyds. RBS has set aside £1.25bn for compensation, less than the £1.5bn at Barclays, which has made the biggest provision. Lloyds has set aside £530m and HSBC £460m.

In August last year, it was revealed Yorkshire and Clydesdale banks had set aside £51m for mis-selling payment protection insurance and £83m for non-PPI claims, including interest rate derivatives, in the first half of its financial year.

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Yesterday a Yorkshire and Clydesdale banks spokesman said: “Other than the IRHP (interest rate hedging product) provision amounts we provided with our results, and confirmation that we’ve commenced paying out compensation to impacted SMEs (small and medium-sized enterprises) for IRHPs, we’ve not provided figures on the total settlements to date.”

A British Bankers’ Association spokesman said: “Banks continue to work hard to complete these reviews and as the regulator notes today, redress is now rapidly flowing to customers. We would encourage customers involved in this process to engage closely with their bank. This will improve their chances of a quick resolution.”