As many as 40,000 complex financial products could have been mis-sold to small businesses, according to the City watchdog's latest estimate of the scale of the banking scandal.
The Financial Services Authority (FSA) confirmed it had increased its estimate of the number of so-called interest rate swap arrangements (IRSAs) that were sold by more than 40%, up from 28,000 initially.
The Herald estimated in June that IRSAs have cost firms billions in costs and liabilities, impacting on tens of thousands of jobs.
The new figure comes after the regulator was supplied with fresh information by banks and suggests the industry could be facing a hefty compensation bill.
Three of Britain's biggest banks – Barclays, HSBC and Royal Bank of Scotland –have already set aside around £630 million to cover the cost of potential mis-selling claims.
The FSA revealed in June that it found "serious failings" in the sale of the interest rate swap products to small businesses.
The products are complicated derivatives that may have been sold as protection – or to act as a hedge –against a rise in interest rates without the customer fully grasping the risks.
Banks are working with the FSA to begin the compensation process.
Barclays, HSBC, Lloyds and Royal Bank of Scotland have already agreed to compensate customers where mis-selling occurred.
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