The City watchdog has confirmed that thousands of small and medium sized businesses (SMEs) have been victims of a mis-selling scandal by Britain's high street banks.
The Financial Services Authority (FSA) said that it has found "serious failings" in the sale of complex interest rate hedging products to some SMEs and has reached agreement with Barclays (LSE: BARC.L - news) , HSBC (LSE: HSBA.L - news) , Lloyds and RBS (LSE: RBS.L - news) to provide appropriate compensation where mis-selling occurred.
The banks have also agreed to stop marketing interest rate structured collars to retail customers.
The announcement follows a Sky News investigation last year which exposed how companies were sold these derivative products called "swaps".
Customers included property developers, hotel owners, farmers, chip shops, butchers and even a kennel owner.
Swaps were marketed as protection for businesses against upward trends in interest rates, but claimants say they were not made aware of significant costs attached if rates fell.
While the banks profited from these agreements, thousands of companies have found themselves facing huge fees associated with the swaps and enormous breakage costs if they want to get out of the deals.
Conversely, some agreements allow banks to pull out if rates rise.
Last August, a former swaps seller James Ducker told Sky News: "The way it was described once by one of my managers was, 'We give the customer an umbrella and when it starts raining we take it away.' Perfect, if rates go up, bank wins, if rates go down, bank wins."
The FSA found a range of poor sales practices including; poor disclosure of exit costs, failing to ascertain the customers’ understanding of risk and "over-hedging" where the swap is larger than the loan. The watchdog also found that sales staff were incentivised to sell more complex products.
Martin Wheatley from the FSA said: "For many small businesses this has been a difficult and distressing experience with many people’s livelihoods affected. Our work has focused on ensuring a swift outcome for these businesses that form such an important part of the economy.
"I am pleased that Barclays, HSBC, Lloyds and RBS have agreed to do the right thing by their customers and offer redress or a review of past sales."
There are still many questions over what happens now, especially for customers who lost their businesses due to swap agreements.
David Smith had been in the hotel business for over 35 years and believes he would still own the Grade II listed Westover hotel on the south coast, if his bank had not managed to get his signature on a piece of paper.
Mr Smith told Sky News: "The emphasis was on the fact that it was free anyway. Why should I worry about a free product that's going to protect me?"
His wife Christine added: "There were several phone calls to ask why we hadn't returned the paperwork and David didn't really want to sign it, but we decided that we had no option.
"We had a loan with the bank and we would do what the bank was advising us to do. I trusted the bank, I trusted them."
A report by a hedging expert shows the bank made thousands from the deal while David and Christine Smith ultimately lost their business.
So will these compensation schemes extend to people who have already lost their businesses and how exactly will the compensation scheme work? All this remains uncertain.
One lawyer who represents swap clients says the FSA scheme does not go far enough. Ali Akram from Lexlaw Solicitors told Sky News: "They don’t explain what ‘redress’ is. If customers are unhappy with it – they are still going to end up in front of the Financial Services Ombudsman, who generally hasn’t been favourable to swaps clients so far."
"Every swap that’s been entered into has legal limitations after six years. So the FSA scheme should explicitly state that banks will not raise limitation as a defence to any legal proceedings."
There have already been attempted legal actions against the banks and several of them have settled out of court.
In December 2011, a couple who owned chip shop in Leeds took on HSBC, and the secretive settlement was estimated at around £200,000 in the chippy's favour.
Another case involving amounts of around £15m was also settled between Lloyds and a care home company called Wingate Associates.
The company said it was satisfied with the agreement but has since made a claim against another bank for £36m.
The FSA says "not all businesses will be owed redress, but for those who are, the exact redress will vary from customer to customer, but could include a mixture of cancelling or replacing existing products, together with partial or full refunds of the costs of those products."