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UK big 4 banks agree to redress on rate protection

UK big 4 banks agree to redress on rate protection

Britain's biggest banks have agreed to a settlement for mis-selling interest-rate protection products to small and medium-sized businesses, the country's financial regulator said Friday.
The Financial Services Authority said Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland have all agreed to provide redress to victims of mis-selling.
The news is the latest setback to befall the sector following the mis-selling of payment protection insurance and the revelations this week that Barclays was slapped with fines worth around $450 million for the rigging of key interest rates.
Despite this announcement, bank shares bounced back Friday from setbacks a day earlier. Barclays, which fell 15.5 percent on Thursday in the fallout from the fines, was up 4.3 percent in early trading in London. RBS, Lloyds and HSBC also advanced.
The FSA said that some 28,000 interest rate protection products had been sold to businesses since 2001. It gave no estimate of how many customers would be entitled to redress, or how much it would cost the banks.
The FSA said the products range from simple caps that set an upper limit on the interest rate, to more complex derivative products.
During a two-month review, the regulator said it found cases of poor disclosure of exit costs, failure to be sure that customers understood risk, and over-hedging in which the protection or duration didn't match the underlying loan.
Rewards and incentives for bank employees also contributed to mis-selling, the FSA said.
Redress could include canceling or replacing the products, or full or partial refunds, the FSA said.
The banks have also agreed to stop selling "structured collars" which fix interest rates within a band but introduced a degree of interest rate speculation, the FSA said.
The sector's reputation for good practice has already taken a battering this week after the Barclays fines.
Barclays was fined 290 million pounds ($453 million) by British and U.S. agencies for manipulating a key interest-rate index, the London interbank offered rate, but providing false date on its cost of borrowing from other banks between 2005 and 2009.
RBS and HSBC are also being investigated for suspected fiddling of interest rates, U.K. Treasury chief George Osborne said.
Gary Greenwood, analyst at Shore Capital, advised investors to limit their exposure to the banking industry.
"The broader point ... is that banks have clearly been involved in some poor business practices prior to and during the credit crisis; that it is possible that not all of these practices have yet to be unearthed; and that it is the threat of civil litigation that is the main risk to future bank share price performance rather than the costs of rectifying such practices and covering fines," Greenwood said.
The four banks have already set aside millions of pounds (dollars) to compensate individuals who were sold payment protection insurance which they didn't need, or understand.
Part-nationalized Lloyds Banking Group said it had not sold interest rate derivative products widely, and said the cost of redress to its customers "are not expected to be material."
There was no immediate comment from the other banks.


Updated : 2021-03-06 01:42 GMT+08:00