MPs hope to put pressure on National Australia Bank to upgrade its review of mis-sold loans to small businesses prior to a flotation of the Clydesdale and Yorkshire banks.

It was reported at the weekend that NAB has appointed advisers ahead of a planned £2 billion flotation, following repeated hints from Melbourne that it is now ready to offload its UK banks.

Last month the banks doubled their provisions for mis-sold PPI and complex loans to over £800m.

The Treasury Select Committee earlier this year held a short inquiry into SME finance and in June quizzed Clydesdale chief executive David Thorburn on the bank's fixed rate Tailored Business Loans (TBLs), which the bank then revealed had been sold to 8,300 customers.

Also known as 'embedded swap' loans, they have an indirect link to a derivative, which meant that when interest rates crashed, SMEs were left with prohibitive break fees of up to 25 per cent of their loan.

Mr Thorburn admitted that the loans had similar characteristics to the derivative-linked loans sold by the bank in far smaller numbers, but covered by a Financial Conduct Authority review now concluding, and agreed that there had been mis-selling.

The FCA has said such loans are classified as commercial and fall outside regulation.

John Thurso, Scottish LibDem MP and treasury committee member, said: "The committee persuaded the FCA to allow it to review the legal advice it (FCA) had received, through the TSC's own counsel. He confirmed in his view the legal advice given to the FCA was correct. It therefore requires changes to the legislation."

Mr Thurso said he expected the committee to agree to propose a draft change to regulations set out in secondary legislation. He said: "That takes care of the future but still obviously leaves the past. In this case we will have to continue to work through the pressure the FCA is putting on NAB and the general willingness to find a resolution.

"This may well be enhanced by the announcement that NAB wish to float the banks and exit the UK, which should present a one-time opportunity for negotiation."

Fiona Sheriff, adviser to campaign group Bully Banks, said: "It's all about whether the FCA have a 'can do' attitude which they do not. We still believe that they have the power to investigate it as a 'conduct' issue."

The Herald understands the bank has now begun making offers to small businesses where it had previously denied any mis-selling, but it is responding only to 550 customer claims rather than reviewing all its fixed rate TBL sales, as was required under the regulatory review.

Cat McLean, partner at MBM Commercial in Edinburgh, said Mr Thorburn's appearance before MPs had been followed by a limited extension of the bank's review process. She went on: "The bank have made it clear that they will not be writing to all of their customers who were sold TBLs - instead it is left very much up to the customer to raise the issue with the bank."

A Clydesdale Bank spokesman said last night: "As was previously explained to the TSC, we're nearing completion of a review of historic fixed-rate TBL complaints which follows a very similar methodology to the formal review.

"Any customer who has a past or current complaint can be assured that it will be dealt with in a fair and consistent way."