July 25 (Bloomberg) -- U.K. Business Secretary Vince Cable said British banks need to act faster to compensate businesses that were improperly sold interest-rate derivatives.
Barclays Plc, Royal Bank of Scotland Group Plc, Lloyds Banking Group Plc and HSBC Holdings Plc agreed last year to compensate some small and medium-sized businesses that bought swaps after a probe by the U.K. financial regulator found that many of the sales didn’t comply with their rules.
The four lenders stopped selling interest-rate collars to retail customers as part of a settlement with the regulator, then known as the Financial Services Authority, which found “serious failings” by the banks dating back to 2001. The FSA was split into two new regulators earlier this year, with markets oversight going to the Financial Conduct Authority.
“I am frustrated at the lack of progress on the mis-selling of interest rates swaps,” Cable said in an e-mailed statement. “I meet many small businesses as I travel around the country who have been afflicted by this scandal and those who deserve compensation should not be left waiting any longer.”
Cable, after meeting FCA Chief Executive Officer Martin Wheatley yesterday, said the regulator would publish updates on the speed with which compensation was being paid. He asked Wheatley whether it would be possible to get this information broken down by bank. The first update will be published in August, Cable said.
Cable suggested banks could pay compensation for direct losses immediately to help companies struggling with cash flow.
Banks offered derivatives to small business and individual customers on concern that they might not be able to service loans if interest rates rose.
Products included caps, where customers paid a premium to keep borrowing costs below a pre-defined maximum; swaps, where customers locked in a fixed rate; and more complex combinations of these products, among them collars, which kept payments within a fixed range. When interest rates fell, the market value of many swap and collar products plunged, leaving customers out of pocket. The banks sold 28,000 of the products since 2001, according to the regulator.
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