THE accountability of bankers is being put to the test as the four large
banks in Britain prepare to pay hefty fines for the misselling of
products to small businesses.
Source from (The Star Online): http://biz.thestar.com.my/news/story.asp?file=/2013/2/6/business/12674077&sec=business
Published: February 06, 2013
One can no longer escape by claiming that as the buyer had signed on the dotted line, the buyer was, therefore, entirely liable for the losses. The little guy can now turn around and have recourse to complain that he had been missold a certain banking product without proper understanding, causing him severe financial difficulties in the process.
In this case, the Financial Services Authority (FSA) has stepped in to say that Barclays, HSBC, the Royal Bank of Scotland (RBS) and Lloyds had missold complex insurance products to small businesses, according to The Guardian.
An estimated 40,000 so-called interest rate swaps could have been missold by banks, which are reviewing the extent of the misselling, which started back in 2001, the report added.
This is not the first case of misselling. Following the misselling of payment protection insurance, banks have paid more than £10bil (RM48.59bil) in compensation and administrative costs, reported The Guardian.
They are also conducting an inquiry into the full extent of the Libor interest rate setting crisis.
Small business lobby groups have warned that businesses would be made bankrupt unless the regulator insisted on a speedy resolution, wrote The Guardian.
According to the report, the products were marketed as low-cost protection against rising interest rates, often as a condition of a business loan, but leaving firms facing huge bills if rates fell.
Firms also faced hefty penalties to get out of the deals, which many said they were not told about.
The FSA has found that, in the 173 test cases examined, more than 90% of sales did not comply with at least one or more regulatory requirements, said The Guardian.
Three of Britain's biggest banks Barclays, HSBC and RBS have already set aside about £630mil to cover the cost of potential misselling claims.
Allied Irish Bank, Bank of Ireland, Clydesdale and Yorkshire banks, Co-operative Bank and Santander will hear in the next couple of weeks whether they have also to conduct reviews.
Banks have been working with the FSA to begin the compensation process and have launched pilot reviews of some 200 alleged cases to assess if misselling had taken place and the potential compensation, said The Guardian further.
The regulator seems to be casting its eagle eye on almost every angle of the banks' businesses.
Heavy fines have been imposed on earlier accusations of money laundering and support of drug barons and terrorists.
This wave of misselling points to a very basic principle that both banks and consumers should not get involved in products they themselves hardly understand.
It does not look good on the consumer, when faced with difficulties, to go whining to the authorities that he had not been informed of certain things about the product.
On the other hand, it looks bad on the banks that had sold these products when they cannot answer certain pertinent questions from the authorities regarding the products.
Over the years, there has been an increasing focus on small and medium scale businesses or SMEs, which are supposed to be getting more sophisticated with a better understanding of hedging.
From the way things are going, that has hardly happened and many could have bought these interest rate swaps blindly, not knowing the full implications of the product.
In their eagerness to push products and ride on the timing, some banks could have become careless and not explained the implications fully to the consumer.
They could have also slipped on certain regulatory requirements, making themselves an easy prey for fines. Misselling of interest rate swaps may not be the last wave in consumer protection, especially in the current season of redress.
All it takes is for some other consumer to complain that he had been short-changed and the investigations will follow.
It is, thus, a time to tread very carefully, even though what has been done before cannot be undone.
Columnist Yap Leng Kuen is reminded that time and tide waits for no man.'
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