Partner Article

Banks found guilty of mis-selling to small firms

The Financial Services Authority (FSA) has found the banks guilty of mis-selling specialist insurance to thousands of small businesses.

The insurance, known as interest rate swaps, was found by the FSA to have “serious failings”. The products were designed to protect finds taking out loans against rising interest rates, and is the third case of serious malpractice at the UK’s banks.

The FSA have now come to agreement with Barclays, HSBC, Lloyds and RBS to provide “redress”, as it is believed that the swaps had a “severe impact on a large number of these businesses”

Since 2001 28,000 interest rate production products have been sold to thousands of small businesses.

The practice has been costly for a number of businesses according to the managing director of the FSA’s conduct unit Martin Wheatley. He said: “For many small businesses this has been a difficult and distressing experience with many people’s livelihoods affected.”

Several banks have been under investigation by the FSA in recent months as part of the investigation. The FSA have also engaged in discussions with around 100 businesses.

Swap products are of varying complexity, and while some can be appropriate in the right circumstances, the FSA have found that a number of unscrupulous practices were taking place. This included a lack of clarity around the costs of stopping a product, failure to check if a customer understood a risk and selling based on personal rewards rather than business needs.

Bosses of the banks have now assured that the problems will be resolved, and have pledged to work with the FSA to come to a satisfactory conclusion. They will also carry out a thorough assessment of sales of products to the relevant customers.

This was posted in Bdaily's Members' News section by Ruth Mitchell .