The Barclays bank scandal has taken up miles of column inches this week, but it has also been revealed that a handful of Britain’s biggest high street banks are in the running for a massive  compensation bill after the Financial Services Authority discovered ‘serious failings’ in the way the banks have been selling complicated financial products to small businesses. So what’s been going on?

Big boys Barclays, HSBC, Lloyds and RBS have said they’ll compensate small business customers whenever there’s proof of mis-selling ‘interest rate swap arrangements’, AKA IRSAs. What on earth are they when they’re at home? IRSA products are complex ‘derivatives’ products, sold as protection against rising interest rates. Which seems fair enough. But serious issues have arisen because it turns out that many of the small business owners in questions weren’t made fully aware of the risks up front.

Parliament debated the issue last week and heard how many business people did not understand the deals, but trusted their bank managers to get it right. More embarrassing still for the banks, apparently many people were threatened with being refused credit if they didn’t sign up for a IRSA product.

It’s the same old, tired story we’ve heard so many times before. Banks seem incapable of selling anything but their core products without getting it horribly wrong – witness the ongoing Payment Protection Insurance mis-selling scandal.

Banks have apparently sold about 28,000 IRSA products to small business customers since 2001, and it has hardly been a big success. Far from it. According to Martin Wheatley, the MD of the FSA Conduct Business Unit, it has been a “difficult and distressing experience with many people’s livelihoods affected.”

The FSA confirmed it has reached an ‘agreement’ with Barclays, HSBC, Lloyds and RBS to provide compensation, and stated that the mis-sold products had had a “severe impact on a large number of these businesses”. While the FSA haven’t mentioned specific amounts of money, a spokesman from Cenkos Securities took an educated guess at anywhere between £1.1 and £1.4 billion with Barclays, the biggest sinner, in line to pay the bulk of it.

What about your small business? Your bank should be contacting you to let you know whether your case will be reviewed and if so, if you will be offered compensation.

The moral of the tale? It’s sad but true. You can’t trust banks to get things right. It’s probably best to consult a trustworthy independent financial advisor before signing on the dotted line for anything but the business banking basics!