FSA investigates banks mis-selling to small businesses
The Financial Services Authority (FSA) is to investigate a growing number of claims that small businesses were mis-sold certain complex financial products by major banks in the UK, following a report that appeared in the Sunday Telegraph.
It is speculated that tens of thousands of small and medium sized enterprises (SMEs) may be affected, amid concerns that the level of mis-selling could equal that of the ongoing payment protection insurance (PPI) controversy. It is claimed that banks including Barclays, Lloyds Banking Group, HSBC and the Royal Bank of Scotland, may be at fault.
The products in question are known as ‘swaps’, many of which were sold on loans to SMEs between 2006 and 2008, as an insurance against rising interest rates. They can however result in significant losses for borrowers if interest rates should decrease.
With the fall in the Bank of England base rate to its historic low of 0.5 per cent in 2009 – where it has remained ever since – businesses have ended up paying far more than originally anticipated.
A BBC report in November last year originally exposed that some small businesses had complained they had been mis-sold the ‘hedging’ product – usually sold between financial institutions and much larger corporations – with some claiming they were unaware the product had even been sold.
The Telegraph has now exposed details that one major UK bank may have settled a complaint about the product with a small business, providing they did not disclose the complaint and settlement to the FSA.
A number of cases have already been brought against banks regarding the ‘swaps’. Although none have yet to reach a decision, it is believed that some cases have been settled out of court.
The FSA is currently investigating the claims, saying that it ‘plans to consider the appropriateness of the product and how it was sold,’ according to the BBC. The results of the initial review will be published in May, with the possibly of a further more in-depth investigation based on these results.