On January 31, the FSA published a report of its findings from pilot reviews conducted by banks into the misselling of interest rate hedging products to small businesses. The report confirms the FSA’s initial view that there has been significant misselling of such products in the small business market.
The pilot reviews were undertaken in order to consider proposed methods of reviewing such sales, and have led to the FSA identifying the following areas where changes in the review approach are required:
- Assessment of compliance with regulatory requirements: consideration of compliance with regulatory requirements and, in the event of non-compliance, redress should be undertaken on a specific case-by-case basis.
- Redress: all non-compliant sales must be considered for redress.
- Sophistication test: the review should be focused on small businesses that were likely to have misunderstood interest rate hedging products.
The FSA anticipates that banks should have completed their reviews within 6 months, although acknowledges that it may take longer for those with large volumes of cases to review.