The U.K.'s four largest banks by assets may have to pay small-business customers hundreds of millions of pounds in compensation after the Financial Services Authority ordered them to start a full review of sales of products designed to reduce companies' interest-rate risk.
The regulator said Barclays PLC (>> Barclays PLC), HSBC Holdings PLC(>> HSBC Holdings plc), Lloyds Banking Group PLC (>> Lloyds Banking Group PLC)and Royal Bank of Scotland Group PLC (>> Royal Bank of Scotland Group plc)have agreed to review individual sales of the products and provide customer compensation where appropriate, in a follow-up to a probe started in June 2012 into the products.
The FSA last year found serious failings in how banks marketed the products, with regulatory rules breached in more than 90% of the 173 sales it initially reviewed. The products are designed to protect small businesses from moves in interest rates, but the FSA said many customers didn't understand the risks and the end product didn't always meet their actual needs. It said rewards and incentives for banks selling the products drove the failures.
The full review is expected to take six to 12 months. Barclays last year set aside GBP450 million against claims over the products, while RBS and HSBC made smaller provisions. Lloyds previously said it didn't expect its costs to be material.
http://www.4-traders.com/news/UK-Banks-Agree-to-Repay-Some-Interest-Rate-Hedge-Customers--15984565/
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