Payouts may start sooner for mis-selling victims

Some firms left out of pocket after being sold interest rate swaps have been waiting more than six months for the outcome of their case.

But now Royal Bank of Scotland and HSBC have announced that initial payments would be made to customers ahead of the final resolutions of claims. Lloyds Banking Group said it would take similar action, but only on a case-by-case basis for customers in financial distress.

Earlier this month, the Financial Conduct Authority (FCA) said progress on compensation had been slower than expected so far. It said out of nearly 30,000 cases under review, just 32 offers had been accepted, totalling £2m.

However it expected the number of offers to increase “rapidly” over the next few months, with banks planning to send out more than 1,000 offers in October.

FCA chief executive Martin Wheatley said: “I welcome the moves to pay compensation in two stages. I’ve been urging the banks to consider what more they could do to ensure the small businesses affected by swap mis-selling get the compensation they’re owed as quickly as possible.

“The announcements over the last couple of days are a good first step.”

A spokesman from Yorkshire Bank said: “We have agreed with the FCA that we will conduct a review of the sale of our interest rate hedging products in line with their published determinations.

“We have written to the customers involved, and advised of the scope and basic structure of the reviews and how we will manage that process, which includes proactive redress in appropriate circumstances.”

Interest rate swaps are complicated derivatives that might have been sold as protection – or to act as a hedge – against a rise in interest rates without the customer fully grasping the downside risks.

They were marketed as low-cost protection against rising interest rates, often as a condition of a business loan.

But businesses as small as bed and breakfasts and takeaway shops were left with large bills after the financial crisis caused interest rates to slide and many faced steep penalties to get out of the deals. Banks have already put aside £3bn to cover the cost of compensation, which comes on top of the industry’s mammoth bill for the mis-selling of payment protection insurance (PPI).