* BoE says UK banks have "dreadful record" of mis-selling
* Deputy governor Bailey promises more vigilance in future
* Lawmakers fear BoE complacent over high-frequency trading
* One MP calls Carney "sly", would not play cards with him
By David Milliken and Tess Little
LONDON, July 15 The Bank of England said on
Tuesday that British banks had a "dreadful record" on
mis-selling complex interest rate hedging products to small
businesses and warned that it would keep a close eye on them.
Before the financial crisis, many businesses bought the
products to protect against interest rate rises, but ended up
facing crippling costs after the BoE cut rates to a record-low
0.5 percent in March 2009.
Last year, the Financial Conduct Authority (FCA), a
regulator, ordered Barclays, Royal Bank of Scotland
, HSBC and Lloyds Banking Group to
investigate nearly 30,000 cases of potential mis-selling.
To date the banks have paid out just a third of the 3.75
billion pounds ($6.38 billion) they set aside to pay
BoE Governor Mark Carney, speaking to a panel of lawmakers
about financial stability, said there had been clear malpractice
and that firms' problems should not be viewed as an inevitable
side-effect of low interest rates.
"This just goes right back into the mis-selling issue, and
it's not a monetary policy issue," he said.
Andrew Bailey, the BoE deputy governor responsible for bank
regulation, said the "dreadful record of British banks and
selling hedging products to customers" meant he would be looking
closely to see if they bent new rules meant to stop this.
"We will have to be very vigilant about this," he said.
British banks have also set aside more than 20 billion
pounds to compensate individual borrowers who were mis-sold
so-called payment protection insurance policies to help them
service loans if they fell ill or lost their job.
Some lawmakers were not happy with the BoE's assurances that
it was keeping an eye on allegations of malpractice in
high-frequency trading of shares in London.
New York's attorney general has filed a securities fraud
lawsuit against Barclays, accusing the bank of giving an unfair
edge to U.S. high-frequency traders.
Carney and Bailey said the FCA was looking at high-frequency
trading in London, something that was not a BoE responsibility.
Some lawmakers said that kind of approach was responsible
for the central bank's delay in spotting the risk of malpractice
in currency markets, something it is now investigating.
Referring to a previous committee hearing where this topic
had come up, Labour Party lawmaker George Mudie said Carney had
appeared disingenuous. "Your face ... was just so sly, I would
have never played cards with you," Mudie said.
Carney and Bailey said the current set-up - where the FCA is
responsible for rooting out malpractice and the BoE is in charge
of financial stability - had been agreed by lawmakers.
Two weeks earlier, Mudie's party colleague Pat McFadden had
described the BoE under Carney as an "unreliable boyfriend"
because of the mixed signals he had given on interest rates.
($1 = 0.5877 British pounds)
(Editing by Susan Fenton)