RNS Number : 4592G
Financial Services Authority
29 June 2012
FSA agrees settlement with four banks over interest rate hedging products
The FSA has today announced that it has found serious failings in the sale of interest rate hedging products to some small and medium sized businesses (SMEs). We believe that this has resulted in a severe impact on a large number of these businesses. In order to provide as swift a solution to this problem as possible we have today confirmed that we have reached agreement with Barclays, HSBC, Lloyds and RBS to provide appropriate redress where mis-selling has occurred.
The banks will move to provide redress directly for those customers that bought the most complex products. They have also agreed to stop marketing interest rate structured collars to retail customers.
Interest rate hedging products can protect bank customers against the risk of interest rate movements and can be an appropriate product when properly sold in the right circumstances. During the period 2001 to date, banks sold around 28,000 interest rate protection products to customers.
These products range in complexity from comparatively simple "caps" that fixed an upper limit to the interest rate on a loan, through to the more complex derivatives such as "structured collars" which fixed interest rates within a band but introduced a degree of interest rate speculation.
Over the past two months the FSA has conducted a review of these sales. We have reviewed a significant amount of documentation from the firms (including sales files, customer complaints and taped conversations). We have also talked to over 100 customers who have come forward.
We have found a range of poor sales practices including:
· Poor disclosure of exit costs;
· Failure to ascertain the customers' understanding of risk;
· Non advised sales straying into advice;
· "Over-hedging" (i.e. where the amounts and/or duration did not match the underlying loans); and
· Rewards and incentives being a driver of these practices.
Not all businesses will be owed redress, but for those that are, the exact redress will vary from customer to customer, but could include a mixture of cancelling or replacing existing products, together with partial or full refunds of the costs of those products. This exercise will be scrutinised by an independent reviewer at each bank appointed under the FSA's powers.
This information is provided by RNS
The company news service from the London Stock Exchange