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* FCA says banks on track to hit May compensation deadline
* Banks so far have paid out 482 mln stg in compensation
* Offer 'fair alternative' to consequential loss claims -FCA
* Consequential losses bill could be 6 bln stg -claims firm
By Matt Scuffham
LONDON, March 5 (Reuters) - Britain's financial regulatorurged small firms that were mis-sold interest rate hedgingproducts by banks to join its compensation scheme as it revealedonly 482 million pounds has been paid out of nearly 4 billionpounds set aside by banks.
The interest rate hedging products were designed to protectsmaller companies against rising interest rates but when ratesfell, companies faced costs typically running to tens ofthousands of pounds. They also faced penalties to get out of thedeals, which many said they had not been told about.
The Financial Conduct Authority (FCA) ordered banks to beginpaying compensation last May after saying there were seriousfailings in the way the products were sold.
By the end of February, the FCA said on Wednesday thatBritain's biggest four banks - Royal Bank of Scotland,Barclays, Lloyds Banking Group and HSBC - had paid out 482 million pounds ($803.64 million) incompensation, up from 306 million pounds a month earlier.
Some firms have opted to stay out of the scheme and takelegal action against banks, including claims for consequentiallosses.
Claims for consequential losses set the clock back to thepoint before the products were sold and require banks tocompensate not just the direct cost of the mis-sold contractsbut any losses that businesses have suffered as a result ofleaving the agreements.
The regulator urged firms not already in the compensationscheme to join it, saying it delivers "fair and reasonableredress to customers where appropriate without the necessity tohire lawyers or claims management companies".
The FCA said an offer by banks to pay customers 8 percentannual interest on top of compensation payments represented a"straightforward and fair alternative" to putting togetherconsequential loss claims which would take longer to assess.
But Daniel Hall, managing director of All Square, whichadvises companies pursuing claims, said firms needed to find outhow they can claim for consequential loss.
"What these figures do not really reveal is what is fastbecoming the single biggest concern for the banks involved - theissue of consequential loss. We estimate that the final bill forconsequential losses could be as high as 6 billion pounds," Halltold Reuters.
So far 18,800 firms had agreed with banks to have theircases reviewed and 3,430 had accepted compensation oralternative products, up from 2,092 at the end of January.
The average payout per offer of compensation stood at140,000 pounds at the end of February, down from 146,000 poundsat the end of January.
Barclays has set aside 1.5 billion pounds to compensatecustomers, RBS 1.25 billion pounds, Lloyds 530 million poundsand HSBC $598 million.
