Banks face £1bn bill over swap sales BANKS are under pressure to move quickly and compensate firms after the City watchdog found that more than 90 per cent of complex interest rate insurance products had been mis-sold. The banks are now expected to face a bill of at least £1 billion over the sale of interest rate swaps, marking the latest in a long line of recent scandals to hit the sector. They have already set aside £12bn to compensate customers who were mis-sold payment protection insurance (PPI) and industry sources believe that figure could double. It is believed that as many as 40,000 of the interest rate swaps could have been mis-sold to small businesses since the end of 2001 after the Financial Services Authority (FSA) highlighted "serious failings" in the sale of the products last summer. The FSA said the UK's four big banks - Barclays, HSBC, Lloyds and RBS - have agreed to start work on reviewing individual sales and providing compensation, and the Federation of Small Businesses (FSB) said "upwards of 2,500" of the products could have been sold in Scotland. RBS, which made a £50 million provision for swap compensation in its second-quarter results, said it would "meaningfully increase" the amount set aside in its annual results to redress customers following the regulator's review. Andy Willox, the FSB's Scottish policy convenor, said: "Scottish businesses caught up in this scandal will be pleased that the FSA has recognised the vast majority of them were sold products that simply weren't right for them. We believe that firms seeking redress should have their payments into these schemes suspended. He added: "Now the pressure is on the banks to contact its customers. They must do so quickly to draw a line under this and bring the situation to a close. The Forum of Private Business said the FSA's findings were "shocking, but unsurprising," and called on banks to suspend all additional interest payments until the review is complete. The swaps were designed to protect firms against rising interest rates, but, when rates fell, companies were presented with large bills. They also faced penalties to get out of the deals, which many said they were not told about. Matthew Fell, director for competitive markets at the CBI, said: "Any small business that has been mis-sold insurance products should be swiftly and fully restored to the position they would have been without the mis-sale. In resolving the situation, regulators should learn from PPI, which has been a protracted affair for both consumers and banks, serving neither party well. The FSA found that, of the 173 test cases it examined, more than 90 per cent did not comply with at least one regulatory requirement. It has also been reviewing sales of interest rate swaps by Allied Irish Bank, Bank of Ireland, Clydesdale and Yorkshire banks, Co-operative Bank and Santander UK. It expects to confirm by 14 February that these banks can launch their own reviews. Anthony Browne, chief executive of the British Bankers" Association, said the FSA announcement "will give clarity to businesses and will enable the banks to put in place the steps needed to resolve each case for customers." He added: "Banks will be contacting those companies affected shortly, prioritising those with the greatest need. Any business which is currently facing financial distress and is seeking a suspension of payments should get in touch with their bank immediately.