SCOTTISH small businesses are in line for millions of pounds in compensation after the City watchdog found Britain's biggest banks guilty of serious failings in the sale of complex financial products.

Royal Bank of Scotland, Lloyds, Barclays and HSBC may face a compensation bill of £6 billion after they agreed to pay out to customers mis-sold interest-rate hedging products and to review all the sales.

The potential bill comes after the Financial Services Authority (FSA) intervened to head off a mis-selling scandal that could have cost Scottish companies £1bn.

The pay-outs would be on top of an £8bn compensation bill for the mis-selling of payment protection insurance (PPI).

Barclays is already reeling from a fine of £290 million for manipulating inter-bank interest rates, with RBS said to be expecting a £150m penalty.

Barclays chief Bob Diamond was effectively put on notice by the Prime Minister David Cameron yesterday when he refused to back him over the inter-bank lending rates scandal.

Mr Cameron warned that Mr Diamond, who has already given up his bonus over the bank's manipulation of lending rates, still had questions to answer.

But there were concerns last night from experts that the agreement with the FSA, intended to avert a PPI-style bonanza for claims companies, could allow the banks to minimise redress.

The Herald revealed this month that interest rate swap agreements (IRSAs) were sold by bank staff earning upwards of £300,000 a year.

It may have cost 20,000 UK businesses as much as £10bn in extra interest payments and £20bn in additional liabilities, threatening up to 80,000 jobs.

Some 28,000 products are now known to have been sold, with a severe impact on a large number of these businesses, the FSA said, adding that for many "this has been a difficult and distressing experience, with many people's livelihoods affected".

The regulator, which only began investigating two months ago after pressure from MPs, said it had found a range of poor sales practices.

They include hiding costs and risks, giving advice when claiming legally not to advise, over-hedging – pushing bigger or longer swaps which were more profitable – and selling in response to rewards and incentives.

The regulator will also be contacting other banks which sold the products.

Labour MP Sandra Osborne said: "It was vital to avoid yet another long-running mis-selling scandal which destroys lives, businesses and public confidence. Stepping up to the plate on this was the least the banks could do. The mis-selling should never have happened in the first place, and only adds to the catalogue of shoddy practices that are being exposed on an almost daily basis."

The banks must compensate victims of "structured collar" swaps, the most complex products, and have agreed to stop marketing them to retail customers.

Banks will appoint independent assessors to review all other cases, and have promised they will "not foreclose on or adversely vary existing lending facilities, without giving prior notice" to any affected customer.

Jackie Bowie, of specialist advisers JC Rathbone, said: "There will be borrowers out there who don't know what sort of product they have got and whether they need to contact their banks."

Mandy Ford, former owner of a Glasgow hotel, has told The Herald she fought her bank through the ombudsman, who later rejected her complaint, after being sold a complex interest rate swap product. As a result, she says she was forced to sell her business. "When you are

a small business, you feel like you are working with the bank, you are in a relationship, and you are all working for the best interests of the business," she said. "The rules have changed. It is now every man for himself and buyer beware."

The Bully Banks campaign, which persuaded MPs to act, said it had "serious concerns about the way in which it is proposed to identify instances of mis-selling".

Campaign spokesman Paul Adcock said the accountancy firms who might be appointed as assessors all had existing connections with the banks. "We would feel concerned about their independence, and their expertise," he added.

Abhishek Sachdev of Vedanta Hedging, said: "If I were the banks, I would be breathing a big sigh of relief. They will be accountants, not FSA-registered specialists who understand derivatives. They are presenting it as smaller than PPI, but the real claims involved are much bigger."

Cat McLean, partner at Edinburgh law firm MBM Commercial, said: "We must ensure the independent assessor doesn't suffer from the malaise which seems to affect the financial ombudsman, where claims can languish for years and who rarely upholds claims against banks, and that sufficiently relevant evidence is given to the assessor."

Andrew Tyrie MP, chairman of the Treasury committee, said: "We need to establish how we got into a situation where these products were permitted to be marketed and sold so inappropriately and to examine what steps have been taken to give us confidence this will not happen again."

RBS said it was "committed to the fair and timely treatment of our customers". Barclays and Lloyds said that any financial pay-outs would be "not material" to the group.