LONDON 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.
The lack of progress has angered small businesses, many of whom are facing crippling monthly repayments and hefty break-up fees to disentangle themselves from the arrangements.
"The industry is deceiving itself if it imagines that a total of 32 offers accepted, totaling two million pounds, is adequate progress," Financial Conduct Authority (FCA) Chief Executive Martin Wheatley said in a speech prepared for delivery in London later on Wednesday.
"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," he will say.
Lloyds (LLOY.L), Royal Bank of Scotland (RBS.L) and Barclays (BARC.L) on Wednesday joined HSBC (HSBA.L) in committing to speed up compensation, making initial payments to some customers before possible claims for consequential losses are assessed. Wheatley described that as a "good first step".
RBS said it had agreed to split compensations payments for all customers mis-sold swap products. Barclays said it would consider any request to provide an advance on compensation on a case-by-case basis to support customers in financial distress and Lloyds made a similar commitment.
A review of interest rate swap mis-selling, set up by the FCA, formally began in May after a pilot scheme. The regulator had said firms would be compensated within 6 to 12 months but the process is now expected to drag out for longer even though banks have taken on more than 2,800 staff to handle the cases.
British lawmakers will debate the progress of the compensation scheme in parliament on Thursday.
(Reporting by Huw Jones and Matt Scuffham; Editing by Anthony Barker)