Thousands of small business in the UK have been mis-sold specialist insurance products, the Financial Services Authority (FSA) announced on July 29th.
Coming on the back of the Libor rate scandal, it is yet another damaging blow to the banking industry.
The FSA said that “serious failings” had been discovered in the selling of insurance rate swaps. Products designed to protect companies from rising interest rates affecting their loan agreements, the FSA said the malpractice would likely have had a “severe impact” on many businesses.
The problem revealed by the FSA is further affected by the complicated nature of the products. In its findings, the city watchdog said there were serious issues with many aspects of the product.
In particular, the FSA highlighted problems with banks not clarifying termination costs, not verifying customers understood the risks involved and selling not in the best interests of the customer.
It is not clear just how much the mis-selling has cost businesses in Scotland and the UK, but, it has gone on for over ten years. Since 2001, nearly 30,000 such products have been sold throughout the country.
It is likely the selling of interest rate swaps has dropped in recent years, particularly as companies look to secure alternative Scottish commercial finance, such as invoice finance through factoring and discounting.
However, Martin Wheatley from the FSA said:
“For many small businesses this has been a difficult and distressing experience with many people’s livelihoods affected.”
The banks guilty of the practice have advised the FSA that “redress” will be forthcoming for all affected.