A new scandal has emerged which could cost banks around £2bn in putting things rights. Barclays, HSBC, Royal Bank of Scotland and Lloyds have put aside £700m in order to compensate the small businesses who were victims of the mis selling of a complex financial derivative known popularly as ‘interest rate swaps’. The Financial Services Authority, the city regulator has urged the banks to review all cases which may have been mis sold financial products. They have said that around 40,000 cases have been the victims of the mis-selling of interest rate swaps since 2001.
Interest rate derivatives were originally designed to protect businesses from rising interest rates. Many small businesses have now however been faced with large amounts of debt and a struggle to pay the banks. However a pilot study carried out on 173 cases found that 9 out of 10 sold to small and medium sized businesses did not meet the regulatory requirement.
Vince Cable, business secretary, said “This is an example of the little guy paying for the big banks
wrongdoing. The immediate priority is to ensure small businesses are not driven out of business by
banks pursuing liabilities for swaps that they mis-sold.”
The FSA is still reviewing sales by Allied Irish Bank (UK), Bank of Ireland, Clydesdale and Yorkshire
banks, Co-operative Bank, and Santander UK. It aims to announce the scale of customer reviews at
those banks from 14th February.
Some affected by this scandal have said that the financial products were a condition of taking out
the loan, others have said that banks had used strong sale tactics in order to sell. As a result many
businesses are now waiting to have their cases reviewed in order to be compensated for any loss. Britain’s biggest banks have already set aside around £12bn in order to compensate those victimised in the Payment Protection Insurance scandal. To find out more go to www.InterestRateSwapsClaim.co.uk.