Banks to pay compensation after mis-selling scandal

The Financial Services Authority (FSA) revealed on Friday that it had found 'serious failings' in the way lenders sold complicated interest rate protection products to small- and medium-sized businesses (SMEs)."In order to provide as swift a solution to this problem as possible we have today confirmed that we have reached agreement with Barclays, HSBC, Lloyds and RBS to provide appropriate redress where mis-selling has occurred," the FSA said in a statement.Businesses were sold the swaps as a way of protecting them from large swings in interest rates. Apparently, some were even told that without the swaps their credit rating would suffer. Instead, since interest rates have come down in the wake of the 2008 financial crisis, the businesses have been left with cripplingly high financing costs. The banks will provide redress directly for those customers that bought the most complex products and have agreed to stop marketing interest rate 'structured collars' to retail customers, the regulator said.This is an all too similar picture for High Street banks which paid out billions of pounds-worth of compensation last year to settle claims that customers were mis-sold payment protection insurance (PPI).Since 2001, banks have sold a total of 28,000 interest rate protection products to customers. Of these, Barclays sold 5,000. The bank said that just 48 complaints have been ruled on by the Financial Ombudsman Service and nearly 90% were decided in its favour.Barclays, like Lloyds, has released a statement saying that the financial impact of remediation costs will "not be material".Some of the products are just simple 'caps' that fixed an upper limit to the interest rate on a loan, while others are more complex derivatives such as the 'structured collars' which fixed interest rates within a band but introduced a degree of interest rate speculation."For many small businesses this has been a difficult and distressing experience with many people's livelihoods affected. Our work has focused on ensuring a swift outcome for these businesses that form such an important part of the economy," said Martin Wheatley, the Managing Director of the FSA's Conduct Business Unit."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," he said.  MPs are still reeling over Thursday's revelation that Barclays was found to be guilty of manipulating interbank lending rates and will face a fine of £290m, prompting calls for its Chief Executive, Bob Diamond, to step down. Other banks are also facing an inquiry regarding that matter.BC