|HSBC among four British banks that may face new mis-selling claims
British banks are braced for another wave of compensation claims after regulators warned of “significant,’’ mis-selling of interest rate hedging products to small businesses.
One analyst suggested the cost to the industry could be about US$1.58 billion, AFP reports.
The Financial Services Authority raised its concerns last year about the sale of complex products by banks to small businesses to help protect them against the risks of changing interest rates. While interest-rate hedging products are useful tools in financial planning, the FSA warned that many small firms did not understand what they were being sold and banks were often driven more by incentives than by good practice.
The regulator asked British banks Barclays, HSBC, Lloyds and RBS to review a sample of sales dating back to December 2001.
“The work on the pilot has confirmed the FSA's initial findings that there was significant mis-selling of IRHPs,’’ it said in a statement.
“We looked at 173 sales to ‘non-sophisticated’ customers from across the four banks and found that over 90 percent of the sales did not comply with one or more of our regulatory requirements.’’
The four banks will now start a full review of their sales, although the FSA said the percentage of cases requiring redress was likely to be lower because the pilot reviews focused on the most complex situations.
Ian Gordon, an analyst at Investec financial group, said the review would be costly given that 28,000 so-called interest rate swaps had been sold by the four banks since 2001.
But in a commentary note, he said: “Unlike PPI, there is not an near-automatic presumption of guilt. We estimate that the incremental cost to the industry here could be about 1 billion pounds.’’