UK banks 'slow' to pay out on swaps mis-selling claims

Reuters
The logo of the new Financial Conduct Authority is seen at the agency's headquarters in the Canary Wharf business district of London
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The logo of the new Financial Conduct Authority (FCA) is seen at the agency's headquarters in the Canary Wharf business district of London April 1, 2013. REUTERS/Chris Helgren

By Matt Scuffham and Huw Jones

LONDON (Reuters) - Britain's banks have paid out 500,000 pounds ($780,000) of the 3 billion pounds they have set aside to compensate small firms mis-sold complex interest rate hedging products, the Financial Conduct Authority (FCA) said on Wednesday.

The bill is the latest faced by banks, which are also compensating customers for mis-sold payment protection insurance (PPI). Two British banks have also been fined for manipulating the London Interbank Offered Rate, or Libor market benchmark.

The Federation of Small Businesses said the FCA had "laid bare depressing figures", which showed only 10 out of over 15,000 affected small businesses had been offered compensation for mis-sold interest rate hedging products (IRHP).

"We are quickly losing confidence in the banks and the regulator as this scheme remains unbelievably slow. We warned that if the process isn't quick and fair it would risk litigious claims, and further undermine confidence between small firms and the banks," the lobby group said on Wednesday.

Interest rate swaps were designed to protect smaller companies against rising interest rates but when rates fell, they had to pay large bills, typically running to tens of thousands of pounds. Companies also faced penalties to get out of the deals, which many said they had not been warned about.

The review of potentially mis-sold IRHP, set up by the FCA, began in May. The regulator said in its first update on how banks are responding to claims that by the end of August offers of redress had been accepted by businesses totalling half a million pounds.

This figure is expected to increase rapidly over the coming months with 210 offers already sent out to customers and with a further 1,700 due to be sent shortly, the FCA said.

Data from the FCA showed differing rates of progress in dealing with cases at Britain's biggest four banks. Barclays has reached the redress offer and acceptance stage for 92 sales, with 68 at HSBC, 13 at Lloyds and 20 at RBS.

The banks have taken on 2,800 staff to review more than 30,000 cases and the FCA expects most customers will be told by the end of the year about the result of their review. More than 25,000 sales or 85 percent of the total are being assessed.

"With 85 per cent of cases now under review, banks have made progress. But like the thousands of affected small businesses, we want to see redress paid quickly to those who have suffered loss as the result of mis-selling," FCA Chief Executive Martin Wheatley said.

Abhishek Sachdev, managing director of Vedanta Hedging, which advises firms on IRHP, criticised what he said was the slow rate of progress, saying only 0.03 percent of affected businesses had so far received compensation.

VARIED PROGRESS

The FCA data showed majority state-owned RBS to have more claims under review than Lloyds, Barclays and HSBC combined.

RBS is assessing 10,500 cases, compared with 3,400 at Barclays, 3,300 at HSBC and 2,700 at Lloyds.

However RBS has set aside 750 million pounds for compensation so far - far less than Barclays' 1.5 billion pounds, while Lloyds and HSBC have each set aside 400 million pounds.

"If taken at face value, RBS appears the most likely bank to require material additional provisions for the IRHP issue," said Investec analyst Ian Gordon.

Banks have also made varied progress in getting to grips with cases, according to the data. Of the 10,500 cases RBS is assessing, it is still deciding whether 4,600 cases even qualify for the redress scheme, while Barclays has completed that stage of the review and Lloyds has less than 900 cases to consider.

RBS said it was committed to ensuring those mis-sold the products were compensated fairly.

"We are prioritising those businesses that are most in distress first, and working towards processing the majority of cases within the timeframe set by the regulator," it said.

The British Bankers' Association (BBA), an industry lobby group, said the report showed the majority of customers had now been contacted by their bank and their cases were being reviewed.

The BBA also said banks had suspended IRHP payments for businesses in financial distress.

Due to their complicated nature, redress offers to customers making a claim for certain consequential losses may take longer, the FCA said.

Money set aside by banks to compensate for mis-selling PPI has reached around 15 billion pounds so far, forcing lenders to beef up their capital positions.

(Editing by Mark Potter and Pravin Char)

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