Banks in rate swap dispute with SMEs

BRITAIN’S top banks face claims of mis-selling from hundreds of small businesses that bought complex interest rate derivatives before the start of the financial crisis.

Barclays and HSBC, as well as taxpayer-backed Lloyds and Royal Bank of Scotland, all face allegations that they pushed small- and medium-sized enterprises (SMEs) to take out interest rate swap products.

They were intended to protect loans from upward movements in rates but when rates plunged in early 2009 it left many SMEs facing costs of hundreds of thousands of pounds, or even millions.

The disputes come just months after the scandal over payment protection insurance (PPI), which led British banks to pay out £1.9bn last year.

Several legal cases over the derivatives are under way. Barclays appeared at a pre-trial hearing in Bristol on Friday while RBS is fighting a separate battle in Edinburgh.

Last night, however, one banking insider played down the prospect the disputes would be “the next PPI”. He said small business customers often paid more in the short-term, followed by lower costs, so the total amount owed did not change significantly.

Barclays said it is “satisfied that it provides sufficient information to enable a client to make an informed, commercial decision about the products it offers.”

Lloyds declined to comment. RBS said the sale of rate swaps complied with the regulations and that it has “strict policies in place to ensure that interest rate swaps are sold properly.”

HSBC said it aims to meet all legal and regulatory obligations and would look at any customer’s concerns. A spokesman said: “We have extensive processes that are designed to ensure we provide customers with appropriate products according to their needs, knowledge and experience as well as a full explanation of the products and relevant risks.”