LONDON, Oct 23 (Reuters) - Britain's financial regulator told banks on Wednesday to speed up compensation for complex hedging products they mis-sold to small firms that are now finding it hard to stay in business.
Banks have paid out just 2 million pounds ($3.2 million), a fraction of the three billion pounds they set aside to compensate for unsuitable swaps that were sold, in the years leading up to the 2008 financial crisis, to insure companies against interest rate hikes.
Interest rates actually fell, forcing small firms to pay out tens of thousands of pounds.
"In a situation where many small employers who took out these products may be struggling to make ends meet, the industry is deceiving itself if it imagines that a total of 32 offers accepted, totalling two million pounds, is adequate progress," Financial Conduct Authority (FCA) Chief Executive Martin Wheatley said.
"A very good option in what is now a very fluid situation is to follow the positive lead set by some banks, by paying compensation in separate stages, effectively fast tracking compensation payments," Wheatley says in a speech to be delivered in London later on Wednesday.
Announcements by Lloyds and HSBC in recent days that they will speed up compensation were a good first step, Wheatley said.
Lloyds said it has reviewed 99 percent of transactions.
"We have confirmed to the FCA that we will, on a case by case basis for customers in financial distress, offer to pay any redress due in relation to historical payments before any consequential loss claim has been outlined by the customer and agreed with them," Lloyds said in a statement.
Data from the FCA this month showed that RBS to have more claims under review than Lloyds, Barclays and HSBC combined.