LONDON (Reuters) - Britain’s financial regulator has written to the bosses of the country’s biggest four banks to tell them to speed up compensating small firms mis-sold risky products designed to insure them against rising interest rates.
Banks have set aside some 3 billion pounds for compensation payments in this area, but have so far handed out just 15.3 million, or 0.5 percent of the total, data from the Financial Conduct Authority (FCA) showed on Thursday.
The regulator, which said only 125 offers had so far been accepted by customers, had ordered a review of nearly 30,000 cases in May having identified serious failings in the way the products were sold.
The payouts are adding to the mis-selling bill for UK banks, which have also set aside more than 17 billion pounds to compensate customers mis-sold loan insurance.
Many banks also face hefty fines for allegedly rigging reference interest rates such as Libor.
The FCA said on Thursday progress in paying compensation for mis-sold interest-rate products had been slower than expected, despite a significant pick-up in October.
“We gave the banks six to 12 months to complete their reviews from the start of the process and are frustrated that they are all expecting to meet the lower end of our expectations,” the FCA said on its website.
The regulator said current trends suggested banks will not meet the deadline, so it has written to the bosses of Royal Bank of Scotland, Lloyds Banking Group, Barclays and HSBC to make its expectations clear and agree practical ways to speed up the process.
The products in question were interest-rate swaps designed to protect smaller companies against rising 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 told about.
HSBC, RBS, and Lloyds have committed to speed up compensation, making initial payments to customers before possible claims for consequential losses are assessed - a move FCA Chief Executive Martin Wheatley called a “good first step”.
Barclays has said it will make decisions on a “case-by-case” basis in order to support customers in financial distress.
Lloyds had said on Wednesday the number of customers that it has informed of a compensation decision had quadrupled in the last month to 135. It expects that to double in the coming month and said it was on track to inform customers of decisions within the 12 month deadline.
HSBC also said it had plans in place to enable it to meet the deadline.
The FCA however said banks had failed to meet a target to send out at least 1,000 offers of compensation in October, with the number sent out closer to 800.
Data from the FCA showed differing rates of progress in dealing with cases between the banks. HSBC has reached the “redress offer and acceptance” stage for 436 sales, compared with 325 at Barclays, 205 at RBS and 135 at Lloyds.
The FCA data also showed majority state-owned RBS to have more claims under review than HSBC, Barclays and Lloyds combined. RBS is assessing 9,728 cases, compared with 3,371 at Barclays, 3,296 at HSBC and 1,936 at Lloyds.
RBS has set aside 750 million pounds for compensation so far - far less than Barclays’ 1.5 billion, which is the biggest provision of all the banks. HSBC has set aside 460 million and Lloyds has set aside 400 million. ($1 = 0.6219 British pounds)
Editing by Sinead Cruise and David Holmes