LONDON — Britain's financial regulator on Friday said it had ordered the country's major banks, including HSBC and Barclays, to compensate businesses for "serious failings" over the sale of complex products.
The Financial Services Authority (FSA) said it had reached agreement with Barclays, HSBC, Lloyds and Royal Bank of Scotland "to provide appropriate redress" for mis-selling interest rate hedging products.
It is a fresh major blow for Britain's beleaguered banking sector at the end of a week in which Barclays was hit by record fines for rigging interest rates and bailed-out Royal Bank of Scotland was unable to settle transactions for millions of customers because of an IT meltdown.
A "real change in culture" at the banks is needed, Bank of England governor Sir Mervyn King said Friday.
He hit out at banks for "excessive levels of compensation, shoddy treatment of customers and a deceitful manipulation of one of the most important rates".
However the governor ruled out a wide-ranging public inquiry -- similiar to the Leveson inquiry into press ethics -- into the banks.
"The FSA has today announced that it has found serious failings in the sale of interest rate hedging products to some small and medium sized businesses," the watchdog said in a statement.
"We believe that this has resulted in a severe impact on a large number of these businesses. In order to provide as swift a solution to this problem as possible we have today confirmed that we have reached agreement with Barclays, HSBC, Lloyds and RBS to provide appropriate redress where mis-selling has occurred."
The FSA said that about 28,000 interest rate protection products had been sold by the banks to customers over 11 years to 2012.
"Interest rate hedging products can protect bank customers against the risk of interest rate movements and can be an appropriate product when properly sold in the right circumstances," it added.
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