Farmers are absorbing the outcome of a pilot study by the Financial Services Authority (FSA) which found that over 90 per cent of the interest rate hedging products banks encouraged small and medium firms to take out were mis-sold.The FSA said today that in the 173 test cases it examined from across the UK, the overwhelming majority of sales did not comply with at least one or more regulatory requirements. It said a significant proportion of the cases will result in compensation pay-outs, but there are concerns that firms will not receive the level of compensation they are due.Woodhead Investments, a Wakefield-based property group with 300+ residential homes and some 150 commercial properties across the north of England, is one of the many SMEs taking specialist advice on the hedging products it was sold.David Woodhead, a director, commented: “We took on board a number of these interest-rate swap policies in good faith but found them to be damaging and extremely expensive to exit. We had to sell a number of properties in our portfolio to be able to cut our ties with the bank in question. It would be marvellous to see the FSA properly hold the all the banks to account for the stress and harm they have inflicted on family businesses like ours – but I’m not holding my breath.”The interest rate swap products were sold to companies on the basis they would protect them from interest rate rises by fixing rates on their loans. In fact, when interest rates dropped to historic lows, some businesses were hit with massive fees. Others complained they faced huge penalties for cancelling the hedges or refinancing their loans to take advantage of lower rates. Many SMEs have also reported that they were told that buying the swaps was a condition of taking out the loan, while others have complained of high-pressure sales tactics and large fees to exit the swaps.Daniel Fallows, a specialist in interest rate swaps at Seneca Banking Consultants, which is handling claims worth in excess of £100m+ for a number of farmers, said: “There is some good news in the FSA report – particularly that they have widened the test for claimants. Whether you are considered a ‘sophisticated’ or ‘non-sophisticated’ business is a key factor in whether you can claim. Previously the threshold was nominally at companies with a turnover of £6.5 million. The FSA has broadened this definition slightly but we still feel that this will prevent many businesses who may fall marginally outside this test to be denied a right to redress on a product they did not understand. The FSA test which is based on the Companies Act test does not reflect whether a business understood what was in reality a highly complex financial derivative product. We feel each case should be based only on its only merits. We advise some clients who exceed the turnover test many times over. However, it is very clear from the correspondence between bank and the company that the company did not understand what it was signing up to and being sold. So the current test for non-sophisticated is still very restrictive.”“It’s also true that no two cases are quite the same and adopting a rigid and formulaic approach will inevitably mean injustice remains in many cases. It’s certainly important than any Yorkshire business which thinks it has been sold a swap, cap or collar takes specialist advice. The cases can be complex and not every who bought one of these products will be able to make a claim.”The FSA has made it clear that that ‘consequential loss’ is to be part of redress, a statement which will be welcomed by the 40,000+ business across the UK believed to be affected. “We wholeheartedly support the FSA’s on this point,” said Mr Fallows. “It’s simply not sufficient for banks to reimburse the interest paid – these products have in many cases destroyed good businesses that have been going for decades. The aim of the compensation process should be put the customers back in the position they’d have been in had these policies not damaged their businesses. There are numerous stories of misery across the county.”The FSA appears to discourage customers taking advice on these claims and states that this is a straightforward process – a view hotly disputed by the legal teams representing the firms which were mis-sold . “We whole heartedly disagree with the FSA’s suggestion the process of making a claim is straightforward – and that point smacks of lobbying from the banking industry. The fact that it has taken the FSA seven months to review 175 cases shows the complexities involved.”Farmers may find other shortcomings in the FSA report, added Mr Fallows. “There’s also a still no real timeframe imposed on banks for starting redress – which is startling given that overall the report confirms what has been epidemic of mis-selling to small and medium-sized businesses. There’s also no further light shed on the issue of suspending payments for those firms trapped with expensive hedging products.”The Federation of Small Businesses has said that the banks need to take “swift and decisive action” to compensate the businesses caught up in the mis-selling scandal.In the pilot study the FSA looked at a sample of cases from Barclays, HSBC, Lloyds and Royal Bank of Scotland. It is still reviewing sales by Allied Irish Bank (UK), Bank of Ireland, Clydesdale and Yorkshire banks, Co-operative Bank, and Santander UK. It said it aimed to announce the scale of customer reviews at those banks by mid-February.