Lords of Miselling

The big four High Street banks have been ordered to begin reviewing all interest rate hedging products they may have mis-sold to small businesses.

The Financial Services Authority (FSA) said Barclays, Lloyds, HSBC and RBS would seek to identify and provide compensation to all those customers who had been mis-sold products.

The FSA's announcement follows its own review of 173 such sales last year, of which more than 90% broke regulations.

The products were typically sold to "protect" borrowers from rising rates.

In many cases, banks insisted that small business clients, such as care home providers, veterinary surgeons and pub landlords, had to take out the hedging products as a pre-condition for receiving a loan.

Businesses that bought the products before the 2008 financial crisis were then unable to benefit from the Bank of England's decision to cut interest rates to a historically low 0.5%. Many found they could not terminate the arrangement without paying enormous fees to their lenders.

In some cases, the product was for a larger amount or lasted many years longer than the loans they were supposed to be hedging.

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