Business

Regulator could fine banks for 'swap' mis-selling

Pound notes
Image caption The FCA said that in 9 out of 10 cases banks broke the rules when they sold customers swap products

The Financial Conduct Authority (FCA) has said it could fine banks who mis-sold complex loan insurance products.

The deals were meant to give borrowers security against rising interest rates but with rates at an historic low many businesses saw their payments soar.

A redress scheme set up by the FCA to review 30,000 cases in July 2012 has resulted in only 32 businesses receiving compensation to date.

The products were sold to protect borrowers from interest rate increases.

But with interest rates at an historic low many businesses have seen their payments soar.

Many companies claimed that they were pressurised into buying these products by various major banks.

They said they were told by banks that they could only have their loan on the condition they took out the swap deal as well, and that in some cases they were given very little time to make a decision.

The only way to end the contract was to pay a huge fee.

Image caption Michael Whelan was quoted £100,000 to extricate his business from the swap deal

Michael Whelan has run Kites Nursery in south Wales with his wife Catherine for five years. He said he had no knowledge of this type of product.

"I didn't even know what a swap was. It's something that would never have crossed my mind even to know that it existed," he said.

Figures from Barclays initially suggested they would have to pay £12,500 to extricate themselves from the deal. Michael says in the end they were quoted £100,000.

He said his life has been put on hold for the last five years.

"I take tablets, antidepressants, beta blockers... diazepam. I have to sleep, because I can't sleep with the worry."

Barclays says it has suspended Kites Nursery's interest rate swap payments.

"After four months, Kites Nursery have responded to our invitation to give an account of the sale from their perspective," the bank added.

"Under the oversight of the independent reviewer, we are now progressing the case as fast as we can. If we made mistakes, we will put them right."

BBC Panorama has spoken to a whistle-blower who had worked in banking for 40 years. He did not want to be identified but said that the scandal was driven by big bonuses.

"They were selling complicated instruments to people who didn't understand them," he said.

"The sale of swaps was very aggressive and distorted because your bonus was linked to how much profit you generated.

"The senior management were pushing these things. You can get double your salary as a bonus, your boss got a bonus, and his bosses got bonuses."

Martin Wheatley, chief executive of the Financial Conduct Authority, said the mis-selling of these products was a cultural problem.

"In some cases the banks were selling more complicated products than they needed to because they made more profit from it.

"I think there was a particular period - and if we look at the period 2005 to 2008 - where I think the moral compass was lost in banking."

He said that the FCA would consider fining banks after the redress scheme had closed.

"There will be cases where we may need to take further action. We're not talking about that at the moment because we're focussed on getting people their money back," he said.

Panorama: Britain's New Banking Scandal, BBC One, Monday 14 October at 20:30 BST and then available in the UK on the BBC iPlayer.

More on this story