Warning over bid to impose secrecy on payouts

The comments were made by a spokesman for Vedanta Hedging, which is advising companies who may have been mis-sold interest rate swap products by the major banks.

Mis-selling victims should also have the right of appeal if they are unhappy with the level of compensation set by an independent reviewer in connection with the interest rate swaps scandal, according to Vedanta.

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 customers 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 were left with colossal bills after the financial crisis pushed interest rates down to historic lows.

In some cases, this cost has dragged the firm under. The banking industry is facing a large compensation bill after a review of interest rate swaps sold to small businesses found that more than 90 per cent had been mis-sold.

Most banks which mis-sold interest rate swap products have appointed independent reviewers, which have been approved by the newly created Financial Conduct Authority (FCA).

A spokesman for Vedanta, a derivatives specialist which is authorised by the FCA, said he believed the system of redress could be improved.

The Vedanta spokesman said: “We have concerns that the consequential losses that the banks will be providing back to SMEs (small and medium-sized enterprises) will be subject to confidentiality clauses.

“Given that the redress provided for the actual mis-sold derivative will not be subject to confidentiality, we can see no reason why the consequential loss should be kept confidential.

“It could be that the banks are worried about the size of the consequential losses they may be faced with.

“We also believe an appeals process should be provided for SMEs within the FCA review process.

At the moment, the only options are litigation and the FOS (Financial Ombudsman Service). Litigation is likely to be expensive and may not be possible if the derivative was sold more than six years ago.

“The FOS will only accept very small ‘micro-enterprises’ as eligible complainants. We believe that the independent reviewer of one bank could be used to listen to appeals from another bank, because the FCA will not have the ability to review individual cases. This would not be difficult to implement.”

A British Bankers’ Association spokesman said: “All banks are following the process as laid down by the FCA.

“The banks engaged in this review are all working proactively with the FCA and independent experts to take forward the review process so that it can be resolved as swiftly as possible.”

A spokesman for the FCA declined to comment.