Four big British banks have agreed to provide redress to customers who were improperly sold interest rate hedging products.
The UKs Financial Services Authority (FSA) announced Friday that it has reached a settlement with four big banks, Barclays, HSBC, Lloyds and RBS, concerning “serious failings” that the regulator uncovered in the sale of interest rate hedging products to some small and medium sized businesses.
The regulator reports that its review of these sales 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; and, incentives driving these practices. The regulator says that this has resulted in “a severe impact” on a large number of these businesses.
And so, the banks have agreed to provide redress directly to customers that bought the most complex products since 2001, review the sales of their other less complex products since 2001, and they have also agreed to stop marketing complex products, known as “structured collars”, to retail customers.
The exact form of redress will vary from customer to customer, the FSA says, noting that it 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, and the CEOs of the four banks have all agreed to take responsibility for these reviews.
“I am pleased that Barclays, HSBC, Lloyds and RBS have agreed to do the right thing by their customers and offer redress or a review of past sales. These firms have responded to the need to provide a fair deal for customers by working with us, and I welcome this outcome,” said Martin Wheatley, managing director of the FSA’s Conduct Business Unit.
The FSA notes that its review has focused on the four big retail banks in the UK, but that it will be expanding its inquiry to other banks that have sold these products.