The regulator said in order to provide as swift a solution to the problem as possible it has reached an agreement with the four banks to provide appropriate redress where mis-selling has occurred.
Over the past two months the FSA has conducted a review of interest rate hedging products and found evidence of a range of poor sales practices by the banks, including:
- Poor disclosure of exit costs;
- Failure to ascertain the customers’ understanding of risk;
- Non advised sales straying into advice;
- “Over-hedging” (i.e. where the amounts and/or duration did not match the underlying loans); and
- Rewards and incentives being a driver of these practices
Interest rate hedging products can protect bank customers against the risk of interest rate movements and can be appropriate when sold in the right circumstances, the FSA said.
Between 2001 and now banks have sold approximately 28,000 interest rate protection products to customers.
The banks will move to provide redress directly for customers that bought the most complex products and have agreed to stop marketing such products to retail customers.
Martin Wheatley, managing director of the conduct business unit, said: "I am particularly pleased that the CEOs: Bob Diamond, Brian Robertson, Antonio Horta Osorio and Chris Sullivan have provided a personal assurance that they will have responsibility for oversight of this work and will ensure that complainants are treated fairly.
"They have also committed that, except in exceptional circumstances, they will not foreclose on or vary existing lending facilities without the customer’s prior consent."
