Britain's biggest banks have agreed to a settlement for misrepresenting interest-rate protection products sold to small and medium-sized businesses, the country's financial regulator said Friday.

The Financial Services Authority said Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland have all agreed to provide redress to victims of the practice.

The news is the latest setback to befall the sector. It has previously been found liable for misrepresenting payment protection insurance and this week Barclays was fined $453 million by US and UK agencies for misreporting key interest rates.

Despite this announcement, bank shares bounced back Friday from setbacks a day earlier as markets cheered the outcome of the latest summit of European Union leaders. Barclays, which fell 15.5 percent on Thursday a day after the fines, was 1.5 percent higher in mid-afternoon London trading. RBS was up 3.5 percent.

The FSA said that some 28,000 interest rate protection products had been sold to businesses since 2001. It gave no estimate of how many customers would be entitled to redress, or how much it would cost the banks but said the products range from simple caps that set an upper limit on the interest rate, to more complex derivative products.

During a two-month review, the regulator said it found cases of poor disclosure of exit costs, failure to be sure that customers understood risk, and over-hedging in which the protection or duration didn't match the underlying loan.

Rewards and incentives for bank employees also contributed to mis-selling, the FSA said.

Redress could include cancelling or replacing the products, or full or partial refunds, the FSA said.

The banks have also agreed to stop selling “structured collars” which fix interest rates within a band but introduced a degree of interest rate speculation, the FSA said.

Part-nationalised Lloyds Banking Group said it had not sold interest rate derivative products widely, and said the cost of redress to its customers “are not expected to be material.”

RBS, 82 percent owned by taxpayers, said it had agreed to redress for “a small number of less sophisticated customers who entered into more complex swap products.”

Barclays said around 5,000 interest rate hedging products had been sold to small and medium-sized business customers. Of 48

complaints ruled on by the Financial Ombudsman Service, nearly 90

percent were decided in Barclays' favour, the bank said.

The sector's reputation for good practice has taken a battering this week after the Barclays fines.

Barclays was fined 290 million pounds ($453 million) by British and US agencies for manipulating a key interest-rate index, the London interbank offered rate, between 2005 and 2009. RBS and HSBC are also being investigated for suspected fiddling of interest rates.

Gary Greenwood, analyst at Shore Capital, advised investors to limit their exposure to the banking industry.

“The broader point ... is that banks have clearly been involved in some poor business practices prior to and during the credit crisis; that it is possible that not all of these practices have yet to be unearthed; and that it is the threat of civil litigation that is the main risk to future bank share price performance rather than the costs of rectifying such practices and covering fines,” Greenwood said.

Separately RBS CEO Stephen Hester said he wouldn't take a bonus this year following days of computer problems which affected thousands of customers. Hester waived his bonus last year in the face of a political uproar.

Barclays CEO Bob Diamond is also giving a bonus this year because of the fines announced this week.

The four banks have already set aside millions of pounds (dollars) to compensate individuals who were sold payment protection insurance which they didn't need, or understand. - Sapa-AP