Banks are seeking to "water down" the restitution due to small businesses mis-sold interest rate hedging products, the campaign group Bully Banks has claimed.

The group said it feared the redress scheme now being managed by the Financial Conduct Authority, although still in its early stages, would allow banks to exploit mis-selling victims.

Bully Banks said it was stepping up its activities due to concern over "continuing failure by many of the banks' senior managers to accept responsibility for their bank's actions and fears that banks have been successful in watering down the cost of restitution and justice".

It said the signs were that banks might look to offer businesses alternative "swap" based loans, of a smaller size or shorter term, replacing their existing toxic product with a "baby-toxic" one.

The campaign group said it was also "seeking confirmation that banks were prevented from stipulating gagging orders on any settlements agreed pursuant to or in place of the scheme" and for a wide range of losses to be taken into account when assessing losses.

It is also highlighting inconsistencies in the review process where, for example, HSBC is refusing to offer face-to-face meetings.

Jeremy Roe, chairman of Bully Banks which has 1200 SME members, said: "Having won the upfront battle in establishing the principle of mis-selling there is real concern small businesses could lose the war, and fail to obtain the full and fair restitution due." He added: "We still do not know what redress means, 10 months after the Financial Services Authority announced the agreement with the banks."