Banks to review selling practices in UK

Bank of Ireland and AIB have agreed to review their product selling practices in Britain, as part of a wide-reaching probe by Britain’s financial watchdog.

The two Irish banks are among seven additions to an already under way investigation of potential mis-selling of interest rate swaps being carried out by the Financial Services Authority.

Last month, the FSA found what it called “serious failings” in the sale of interest rate hedging products to some SMEs on behalf of Britain’s four biggest banks — Barclays, HSBC, Lloyds and Royal Bank of Scotland. Those banks have agreed to review their selling practices.

However, yesterday, the FSA announced that it has reached agreement with seven more banks to take part in the review — including the British operations of Ireland’s big two banks. The other five are the Co-operative Bank, Santander UK, Northern Bank, the Glasgow-headquartered Clydesdale Bank and its English subsidiary, Yorkshire Bank.

In its June probe, the FSA said it found “a range of poor sales practices” including poor disclosure of exit costs, failure by the banks to ascertain the customers’ understanding of risk and instances of “over-hedging”, where the amounts and/or duration of investment didn’t match the underlying loans.

It is too early to know if any of the above banks grossly mis-sold the complex derivatives products to their corporate clients; and, thus, if any of them will have to pay compensation to clients.

According to an FSA spokesperson, while the banks are under pressure to complete their reviews, it is imperative that enough time is taken in order to ensure that the reviews are done right and thoroughly.

They added that the matter is not so much about compensation payment, but more about redress.

That could materialise in a number of guises — from the removal of cancellation fees or the changing of terms and conditions; so that customers who have been disadvantaged are moved to appropriate products that they were supposed to have been sold in the first place.

“Not all businesses will be owed redress, but for those that are, the exact redress will vary from customer to customer, but could include a mixture of cancelling or replacing existing products, together with partial or full refunds on the costs of those products,” the FSA added.

Both Irish banks confirmed their intention to partake in the review.

However, it is understood that both banks have an extremely small customer base for such products in Britain.