More banks 
may pay out
to SMEs over
mis-selling

Allied Irish Bank, Bank of Ireland, the Clydesdale and Yorkshire banks, the Co-operative Bank, Northern Bank and Santander UK will review the sale of so-called interest rate swaps to small and medium enterprises (SMEs), the Financial Services Authority (FSA) said.

Interest rate swaps are complicated derivatives products that may have been sold as protection – or to act as a hedge – against a rise in interest rates without the customer fully grasping the downside risks.

The move comes after Barclays, HSBC, Lloyds and Royal Bank of Scotland agreed to compensate customers after the FSA found “serious failings” in the sale of swaps to SMEs.

The seven additional banks have a small proportion – around 10 per cent – of the overall interest rate hedging product sales in the UK.

The FSA said it has not examined their sales of interest rate hedging products and so has not made any findings of mis-selling.

Clive Adamson, director of supervision in the FSA’s Conduct Business Unit, said: “Although the number of their sales was smaller and while there is no presumption that mis-selling has occurred, it shows their willingness to do the right thing.”

Business owners who were mis-sold interest rate swaps by the big four banks suffered “a difficult and distressing experience with many people’s livelihoods affected”, the FSA previously said.

The regulator spent two months reviewing the sale of interest rate hedging products, talking to more than 100 customers who came forward. Tactics uncovered included failing to provide sufficient information on the hefty exit costs involved, and failure to gauge the customers’ understanding of risk. It found rewards and incentives were a driver of these practices.