HSBC Holdings PLC HSBA

DJ Financial News: FSA Set to Publish Mis-Selling Report

 
   By Sarah Krouse 
   Of FINANCIAL NEWS 
 

The U.K. Financial Services Authority is set to issue an update on its study of potential mis-selling of complex interest rate derivatives to small and midsize businesses by the U.K.'s largest banks.

Spurred by complaints from small businesses, the FSA's study centers on whether banks unfairly or inappropriately sold interest rate swaps and how widespread the practice was.

Complaints from businesses range from allegations that banks made loans conditional on the purchase of the complex products; that banks did not properly explain the downside of the products or offer alternative solutions; and that the terms of the swaps were longer than the life of the loan they were meant to hedge against.

An FSA spokesman confirmed that it would issue an update Friday. It has previously said that next steps could include a formal investigation into the matter, which was first brought to light by The Daily Telegraph.

Speaking at a June 20 Treasury Select Committee meeting, Martin Wheatley, the managing director of the FSA's conduct business unit, had pledged there will be an update by the end of the month.

He said: "Needless to say, the situation is complex. The range of contracts that people have entered into, and the time period in which they entered them and the prevailing economic conditions, will have varied, and the practices were quite different between the different banks involved."

FSA Chairman Lord Turner had previously written to the committee explaining that the regulator was examining the sales process and incentives involved, whether the products sold were appropriate, the scale and severity of potential issues, and product design.

In his April correspondence with the committee, Turner noted that the regulator had received a "small number" of complaints during 2010 and 2011 and at the time did not "see any widespread, underlying problems."

The Financial Ombudsman Service, which works with consumers and "micro" businesses on disputes with financial services providers, said the volume of complaints was modest, but noted that its remit was limited as it can only work with companies that have both an annual turnover of up to GBP1.67 million and fewer than 10 employees.

MPs have warned that the country needs to avoid a repeat of the payment protection insurance scandal and have called for a resolution system in which businesses are given a written assurance that banks would not mistreat them or foreclose on them if they complain about the products they were sold.

The update is poised to put U.K. banks in the spotlight, including Barclays, which yesterday was hit by $450 million-worth of fines by the UK and US regulators for manipulating the London interbank offered rate. Barclays, HSBC, Lloyds, and RBS were among the lenders named by MPs as institutions that constituents allege unfairly sold them complex products.

Barclays declined to comment; HSBC said it is currently in discussions with the FSA and is "co-operating fully with their thematic review"; RBS did not respond to requests for comment by press time.

Lloyds said the products in question had not been sold widely or in large volumes to small business customers: "Of the very small number of complaints we have received, just a small proportion have been taken as far as the [Financial Ombudsman Service] Ombudsman and, of those, the majority have been ruled on in our favor."

Web site: http://www.efinancialnews.com/story/2012-06-28/fsa-misselling-report-due?mod=blogheadlines-home

(END) Dow Jones Newswires

June 28, 2012 08:29 ET (12:29 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.