Britain's biggest banks have agreed to a settlement for misrepresenting interest-rate protection products sold to small and medium-sized businesses, the country's financial regulator said Friday. The Financial Services Authority said Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland have all agreed to provide redress to victims of the practice.
The news is the latest setback to befall the sector. It has previously been found liable for misrepresenting payment protection insurance and this week Barclays was fined $453 million by US and UK agencies for misreporting key interest rates. Despite this announcement, bank shares bounced back Friday from setbacks a day earlier as markets cheered the outcome of the latest summit of European Union leaders. Barclays, which fell 15.5 percent on Thursday a day after the fines, was 1.5 percent higher in mid-afternoon London trading. RBS was up 3.5 percent.
The FSA said that some 28,000 interest rate protection products had been sold to businesses since 2001. It gave no estimate of how many customers would be entitled to redress, or how much it would cost the banks but said the products range from simple caps that set an upper limit on the interest rate, to more complex derivative products. During a two-month review, the regulator said it found cases of poor disclosure of exit costs, failure to be sure that customers understood risk, and over-hedging in which the protection or duration didn't match the underlying loan.
Rewards and incentives for bank employees also contributed to mis-selling, the FSA said. Redress could include cancelling or replacing the products, or full or partial refunds, the FSA said. The banks have also agreed to stop selling "structured collars" which fix interest rates within a band but introduced a degree of interest rate speculation, the FSA said.