FSA says it has had personal assurances from big four over compensation following its verdict of ‘serious failings’
Banks faced fresh criticism about their treatment of customers on Friday after the Financial Services Authority said the big four high street banks – Barclays, RBS, Lloyds and HSBC – might need to compensate small business customers.
The scandal centres on products sold to firms over the past 10 years that were supposed to help protect them against interest rate movements.
The British Chambers of Commerce said many businesses now looked at the banks “with disbelief and horror” after the City regulator said it had found “serious failings” in the way products were sold. It added that business confidence in the banking system was being eroded “and it will be a long road back to restore it”.
In an effort to prevent a rerun of the procrastination that took place after the payment protection insurance scandal, when banks stalled on compensation, the FSA said it had personal assurances from the banks that compensation would be paid where it was due.
The conclusions came at the end of a two-month review during which 100 customers complained about their treatment by the banks, which sold 28,000 of the so-called interest rate swaps.
Martin Wheatley, who is to head the Financial Conduct Authority when it is spun out of the FSA next year, said: “I am pleased that Barclays, HSBC, Lloyds and RBS have agreed to do the right thing by their customers and offer redress or a review of past sales. These firms have responded to the need to provide a fair deal for customers by working with us and I welcome this outcome.”
Calculating the compensation to each customer is likely to be complex as some products may need to be cancelled, and the FSA has not put a timescale on when the redress must be agreed. An independent scrutineer will be appointed and the FSA will oversee the process.
The British Bankers’ Association issued a statement on behalf of the high street banks: “Our members have been working closely with the FSA while it carries out its thematic review into interest rate swaps and will continue to co-operate fully.”
The FSA reviewed four types of products: swaps, which allowed customers to fix their interest rate; caps, which placed a limit on any interest rate rises; collars, which protected customers from interest rate fluctuations within a simple range; and structured collars, which were more complex, allowing a customer to limit interest rate fluctuations to within a specified range but leaving the customer vulnerable to interest rate rises.
The FSA urged customers not to use claims management companies as the banks would contact them directly.