The Financial Conduct Authority (FCA) has urged around 1,900 small and medium-sized enterprises (SMEs) that were mis-sold interest rate hedging products, or ‘swaps’ by banks to join its compensation scheme, as it revealed that only £482m has been paid out of the nearly £4bn set aside to compensate firms.
The products were designed to protect smaller companies against rising interest rates but when these fell, firms faced costs typically running to tens of thousands of pounds. They also faced penalties to get out of the arrangements, which many said they had not been told about.
The FCA ordered banks to begin paying compensation last May, after saying there were serious failings in the way the products had been sold, and by the end of February the four biggest banks had paid out £482m in compensation, up from £306m in January.
However, some firms have opted to stay out of the compensation scheme and take legal action against the banks instead, including claims for consequential losses but these set the clock back to the point before the products were sold and require banks to compensate not just the direct cost of the mis-sold contracts but any losses that businesses have suffered as a result of leaving the agreements.
The regulator has therefore urged firms not already in the compensation scheme to join it, saying that the offer of 8 per cent annual interest on top of compensation payments delivers “fair and reasonable redress to customers where appropriate without the necessity to hire lawyers or claims management companies”.
So far 18,800 firms have agreed with banks to have their cases reviewed and 3,430 have accepted compensation or alternative products, up from 2,092 at the end of January. The average payout per offer of compensation stood at £140,000 at the end of February, down from £146,000 at the end of January.