Campaigners seek legal review of UK banks' swaps redress scheme

* Law firm Slater & Gordon will lead case

* Action follows publication of new information

* FCA says scheme was 'quick, efficient and fair'

By Matt Scuffham

LONDON, Feb 18 (Reuters) - A campaign group will seek ajudicial review of the process for compensating small businesseswhich were mis-sold complex interest rate hedging products byBritish banks.

The Bully Banks group, which has 2,000 members, acted afterBritish lawmakers last week published an agreement between banksand the financial regulator over how the scheme should operate,details previously been kept out of the public domain.

Law firm Slater & Gordon told Reuters it had startedpreparatory work on the action.

"It has become clear in the last week that the scheme wasnot as it appeared to be," Fraser Whitehead, head of Businessand Litigation Services at Slater and Gordon, told Reuters.

The Financial Conduct Authority (FCA) agreed terms in 2012to compensate thousands of customers mis-sold the products withnine banks including Royal Bank of Scotland, LloydsBanking Group, Barclays and HSBC.

But it quickly attracted criticism with more than a third ofbusinesses excluded from the scheme because they were deemed tobe "financially sophisticated". Many of the firms that wereallowed into it were offered alternative hedging products bybanks rather than cash compensation.

Banks sets aside 4.4 billion pounds to compensate customersbut have so far paid out just 1.8 billion.

"There are major concerns with the redress scheme and wehave raised those with the FCA. We have continually criticisedthe administration of the review process," Bully-Banks ChairmanJeremy Rowe told Reuters.

A legal challenge to the scheme could force banks tore-examine cases and pay out more in compensation, industry andlegal sources said.

Whitehead said he believed the process should be startedagain from scratch.

"All of the cases where clients are dissatisfied with theoutcome of the review should be investigated by a bodyindependent of the FCA, independent of the banks and supervisedexternally," he said.

The products were meant to protect firms against risinginterest rates, but when rates fell the companies had to payextra charges, typically running to tens of thousands of pounds.

The FCA defended the scheme, saying over 14,000 customershad received offers of cash compensation.

"We believe that the redress scheme has provided a quick,efficient and fair way of ensuring the right redress is paid,"it said.

(Editing by Keith Weir)