LONDON - Britain’s biggest banks might have to face up to another expensive mishap.
The Financial Services Authority, the British regulator, said Thursday that it reviewed the sale of certain interest rate hedging products to small businesses and found that more than 90 percent were sold improperly.
Barclays, Royal Bank of Scotland, HSBC and Lloyds Banking Group now have to review each case and compensate customers for any appropriate products. While the banks have already set aside a combined $990 million for any claims, the final bill could be higher.
It’s the latest legal headache for the country’s banks.
The institutions have been ensnared by a global investigation into rate-rigging. Last year, Barclays agreed to pay $450 million to American and British authorities in a rate manipulation case.
HSBC is also dealing with the fallout from a money laundering inquiry. In December, the British bank agreed to a record $1.92 billion settlement over accusations that it transerred billions of dollars for sanctioned nations like Iran and enabled Mexican drug cartels to move money illegally.
British banks previously set aside about $16 billion to compensate customers for wrongly advising them to buy certain payment insurance. The scandal had raised concern among investors about ballooning compensation bills as regulators started to review how banks sold a whole range of complex financial products.
The latest case centers on interest-rate derivative sales, which are supposed to help small companies limit the financial risk of changes in borrowing rates. The banks sold 28,000 of the interest rate hedging products since 2001, the regulator said
A small businesses lobbying group said that some of its members had bought the products thinking they were a condition to getting a bank loan. But the F.S.A., which reviewed 173 sales, said it found “serious failings†by the banks.
John Walker, the chairman of the Federation of Small Businesses, called the f! indings “alarming†and called on the banks to offer appropriate redress as soon as possible.
“This marks significant progress in our review of these products,†said Martin Wheatley, the C.E.O. designate of the Financial Conduct Authority, the newly created regulator that will take over some of F.S.A.’s duties in April. “We believe that our work will ensure a fair and reasonable outcome for small and unsophisticated businesses.
