Factions within the Treasury want the Financial Services Authority to “water down” the findings of a review of banks’ mis-selling of complex financial products to small businesses.
Concern within the Government that the scandal could “blow a hole” in banks’ balance sheets has resulted in the pressure on the FSA, The Sunday Telegraph has learnt.
The regulator will on Thursday publish the results of a pilot scheme to provide “redress” to those affected.
The FSA scheme, agreed after the regulator found “serious failings” in banks’ sales of interest rate swaps to small companies, has analysed 200 cases.
The swaps were supposed to protect against a rise in interest rates but left companies, ranging from fish and chip shops to children’s nurseries, with huge losses.
A source familiar with government discussions over the issue said there are “two camps” in the Treasury: those who want full and fair recompense for affected businesses, and those who fear that would “cost too much and blow a hole in banks’ balance sheets”.
Banks have been deploying “formidable resources” to influence the Government’s thinking, the source warned.
The FSA has estimated that around 40,000 small and medium-sized businesses were sold interest rate swaps by their banks.
A Treasury spokesman said: “The Government has been clear that the mis-selling of financial products is wrong, and supports the FSA’s ongoing work on this issue. It is vital to establish redress as quickly as possible for those businesses that were mis-sold.”