March 5, 2014 / 12:10 PM / 4 years ago

UPDATE 1-UK regulator urges firms to join swaps redress scheme

* FCA says banks on track to hit May compensation deadline

* Banks so far have paid out 482 mln stg in compensation

* Offer ‘fair alternative’ to consequential loss claims -FCA

* Consequential losses bill could be 6 bln stg -claims firm

By Matt Scuffham

LONDON, March 5 (Reuters) - Britain’s financial regulator urged small firms that were mis-sold interest rate hedging products by banks to join its compensation scheme as it revealed only 482 million pounds has been paid out of nearly 4 billion pounds set aside by banks.

The interest rate hedging products were designed to protect smaller companies against rising interest rates but when rates fell, companies faced costs typically 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.

The Financial Conduct Authority (FCA) ordered banks to begin paying compensation last May after saying there were serious failings in the way the products were sold.

By the end of February, the FCA said on Wednesday that Britain’s biggest four banks - Royal Bank of Scotland, Barclays, Lloyds Banking Group and HSBC - had paid out 482 million pounds ($803.64 million) in compensation, up from 306 million pounds a month earlier.

Some firms have opted to stay out of the scheme and take legal action against banks, including claims for consequential losses.

Claims for consequential losses 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 urged firms not already in the compensation scheme to join it, saying it delivers “fair and reasonable redress to customers where appropriate without the necessity to hire lawyers or claims management companies”.

The FCA said an offer by banks to pay customers 8 percent annual interest on top of compensation payments represented a “straightforward and fair alternative” to putting together consequential loss claims which would take longer to assess.

But Daniel Hall, managing director of All Square, which advises companies pursuing claims, said firms needed to find out how they can claim for consequential loss.

“What these figures do not really reveal is what is fast becoming the single biggest concern for the banks involved - the issue of consequential loss. We estimate that the final bill for consequential losses could be as high as 6 billion pounds,” Hall told Reuters.

So far 18,800 firms had agreed with banks to have their cases reviewed and 3,430 had 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 pounds at the end of February, down from 146,000 pounds at the end of January.

Barclays has set aside 1.5 billion pounds to compensate customers, RBS 1.25 billion pounds, Lloyds 530 million pounds and HSBC $598 million.

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