UK banks were hit with a hefty compensation bill after a review of complex products sold to small businesses found more than 90% had been mis-sold.
Business Secretary Vince Cable said it was "unbelievable" that some bankers still expected bonuses.
ITN News Business Editor Laura Kuenssberg reports.
The Business Secretary Vince Cable told ITV News it was "unbelievable" some bankers still wanted big bonuses. He said after everything that had gone wrong the public would not understand.
Greg Clarke, Financial Secretary to the Treasury, said banks must work with independent assessors and their customers to determine the amount of compensation due to clients who were mis-sold interest rate swaps:
The British Bankers Association has welcomed today's report from City watchdog, the Financial Services Authority, into mis-sold interest rate swaps, and has said their members will work with customers affected by the scandal, "prioritising those with the greatest need."
The announcement today will give clarity to businesses and will enable the banks to put in place the steps needed to resolve each case for customers. Where customers have suffered unfairly the banks have all agreed that they will put it right.
– BBA Chief Executive, Anthony Browne.
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.
The Federation of Small Businesses (FSB) has called on banks to take swift action to compensate the businesses caught up in the mis-selling of interest rate 'swaps' "scandal." The FSB said it is concerned there is still not a clear route for businesses to appeal a decision.
The FSA’s report into mis-selling highlights the seriousness of the situation finding that 90 per cent of loans were mis-sold. This is alarming, but will come as a relief to the thousands of small firms who have been anxiously waiting for an outcome on this very complex situation.
The UK's four big banks - Barclays, HSBC, Lloyds and RBS, have agreed to start work on reviewing individual sales and providing compensation, after City watchdog the FSA found a significant proportion of interest rate swaps were mis-sold to small businesses.
The cost of compensating businesses could total as much as £1.5 billion across the sector.
Barclays, HSBC and Royal Bank of Scotland have already set aside around £360 million to cover potential claims.
The Financial Services Authority has confirmed that it will conduct a full review into the mis-selling of financial products to small businesses, in the form of interest rate 'swaps'.
The initial pilot has shown that 90% of sales "did not comply with at least one or more regulatory requirements". The watchdog said a "significant" number of these small business customers will be entitled to compensation.
The work on the pilot has confirmed the FSA’s initial findings of mis-selling of IRHPs.
The FSA looked at 173 sales to non sophisticated customers and found that over 90% of the sales did not comply with at least one or more regulatory requirement. A significant proportion of these 173 cases are likely to result in redress being due to the customer.
Britain's scandal-hit banking industry will face fresh scrutiny today when the Financial Services Authority publishes an update into the mis-selling of complex financial products to small businesses.
As many as 40,000 so-called interest rate swaps could have been mis-sold to small businesses since the end of 2001 after the Financial Services Authority (FSA) revealed last June it had uncovered "serious failings" in the sale of the products.
The FSA is expected to give its verdict on how banks have been handling complaints and how they must process them going forward.
It is thought the cost of compensating businesses could total as much as £1.5 billion across the sector.