Now FSA has sights set on UK banks’ hedging products

The Financial Services Authority is preparing an investigation into complex hedging products offered to small business customers by Britain’s banks.

Barclays, Lloyds Banking Group, HSBC and Royal Bank of Scotland offered a variety of interest rate hedging products, which in some cases did not serve their business customers well when interest rates slumped, it has been claimed.

The regulator has completed an initial investigation into allegations that in some cases the products were mis-sold. It has now asked for further information from the banks as it considers whether to undertake a more in-depth investigation which could lead to enforcement action.

RBS has already admitted that it made mistakes but chief executive Stephen Hester says he does not expect the issue to lead to major problems for the bank.

Britain’s “big four” banks saw profits dented last year after having to set aside billions of pounds to cover the mis-selling of payment protection insurance. This year they made further deductions from their balance sheets as the cost of compensation grows.