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FSA warns UK banks over interest rate swaps

British banks will face sanctions if they are found to have mis-sold interest rates to small businesses.

That is according to Lord Turner, chairman of the Financial Services Authority (FSA), who has pledged that regulators will take a zero-tolerance approach towards such practices.

Lord Turner explained that the FSA - which acts under the Financial Services and Markets Act 2000 - is currently carrying out an investigation into allegations of mis-selling to companies and pledged it will not hesitate to take action if it uncovers "widespread evidence of breaches of our rules".

This analysis is scrutinizing the sales processes and incentives attached to interest rate exchanges, which banks have sold to organizations in a wide variety of sectors, including farms and caravan parks.

During a letter to the Treasury Select Committee chairman Andrew Tyrie, the FSA chief also indicated that other products involving interest rate speculation may also have been sold inappropriately, the Daily Telegraph reports.

By Tony Aynsley