* 598.4 million pounds paid out by banks at end March
* 4 billion pounds has been set aside by 'Big 4' banks
* Some firms taking legal action for consequential losses
* Consequential loss bill could be 6 bln stg -Claims Firm
* Average payout falls to 131,000 pounds/case
(Adds comment, data on average payouts, offers accepted)
By Matt Scuffham
LONDON, April 8 Britain's financial watchdog
urged small businesses that were mis-sold interest rate hedging
products to join its compensation scheme, which has so far paid
out less than 600 million pounds ($996.63 million) from nearly 4
billion set aside by banks.
The Financial Conduct Authority said on Tuesday banks were
on track to meet a deadline for completing a review of nearly
30,000 cases of mis-selling by the end of May, but urged firms
which had not yet opted into the scheme to do so.
But some small businesses have chosen to take legal action
against banks instead, pursuing claims for consequential losses
which could lead to bigger payouts. They have also been put off
by the prospect of being offered alternative products by the
banks, which they do not want, instead of cash compensation.
The regulator ordered banks to start compensating firms last
May after finding serious failings in the way the interest rate
hedging products - known as swaps - were sold.
The products were designed to protect smaller companies
against rising interest rates but, when rates fell, firms faced
costs running to tens of thousands of pounds. They also faced
penalties to get out of the deals, which many said they had not
been told about.
Under the compensation scheme, banks have offered businesses
alternative hedging products in more than a third of cases and
the average payout per case has been steadily falling throughout
the review. It stood at 131,000 pounds per case at the end of
March, down from 140,000 at the end of February.
"Some people have lost all faith in the review and are
talking legal action. What they (banks) have paid out is a
pittance," said Abhishek Sachdev, managing director of Vedanta
Hedging, which advises businesses on the products.
Mark Garnier, a Conservative member of parliament who sits
on the Treasury Select Committee has vowed to keep up pressure
on the regulator and banks to secure a fair deal for claimants.
"We are very angry and we are doing our level best to put
pressure on the regulator," he said at a meeting of claimants in
London last month.
Consequential loss claims 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 entering the
agreements. They could result in the overall bill for banks
being much higher than currently anticipated.
The regulator has said an offer by banks to pay customers 8
percent annual interest on the compensation received is a 'fair
alternative' to consequential loss claims.
"The question of consequential loss is still a huge concern
for the banks involved as this bill could be as high as 6
billion pounds," said Daniel Hall, managing director of All
Square, which advises companies pursuing claims.
The FCA said that, by the end of March, Britain's biggest
four banks - Barclays, HSBC, Lloyds Banking
Group and Royal Bank of Scotland - had paid out
598.4 million pounds ($993.97 million) in compensation, up from
482 million a month earlier.
Out of the 29,563 cases reviewed by banks, 18,800 qualified
to join the scheme which is restricted to businesses deemed to
be financially "unsophisticated".
A decision has been communicated to customers in 9,758 cases
but less than half of those offers have been accepted so far.
Of the 9,758 cases so far decided, 5,540 swaps have been
torn up and customers offered full cash compensation. Customers
have been offered alternative products in 3,484 cases while no
compensation has been offered in 734 cases.
"Businesses that are unhappy with what they are offered
should not accept the first thing they are offered, and they
should not give up hope, particularly if this is an
'alternative' hedging product," Hall said.
Barclays has set aside 1.5 billion pounds to compensate
customers, RBS 1.25 billion pounds, Lloyds 530 million pounds
and HSBC $598 million.
($1 = 0.6020 British Pounds)
(Editing by Steve Slater and Jane Merriman)