An influential group of UK lawmakers promised a comprehensive review of the derivatives mis-selling scandal as it urged tougher rules for Britain's crisis-plagued banks.

The Parliamentary Commission on Banking Standards (PCBS) said it will focus on the mis-selling of derivatives by banks to small-to-medium enterprises (SME) and the impact new rules designed to ring-fence banking activity would have on its future prevention.

"The systematic mis-selling of a range of retail products, over a number of years, on a scale which is only now becoming apparent, has reinforced the impression of a culture across the banking sector which viewed the customer as a short-term source of revenue rather than a long-term client," the PCBS, created after the Libor fixing scandal emerged earlier this year, said in its 'First Report' released Friday.

The report is the result of findings from a PCBS Joint Select Committee hearing in September, where MPs heard nearly three hours of evidence from panellists on consumer and business issues and towards the end an expert witness on the mis-selling of IRSAs.

After the hearing, MPs conducted further research into the mis-selling of derivatives and said they will continue to home in on further investigations, as the extent of the problem did not become widely acknowledged until early this year.

"The extent of the interest-rate swap mis-selling scandal only began to emerge in early 2012. The conduct of derivative sales was therefore not a factor which the Independent Commission on Banking. It is also unlikely to have influenced the Government's conclusions in their June White Paper," said the report.

"In drawing the Commission's particular attention to this issue in October, the Chancellor of the Exchequer wrote that 'recent events have highlighted the conduct risks around the sale of derivatives, including the risk of mis-selling by banks."

IRSAs are contracts between a bank and its customer where typically one side pays a floating, or variable, rate of interest and receives a fixed rate of interest payments in exchange.

They are used to hedge against extreme movements in market interest rates over a given period. Companies which saw the value of these products move against them as rates fell during the recession now owe banks crippling sums of money in interest payments each year.

In June this year, the Financial Services Authority (FSA) established an agreement with the banks to look into over 40,000 IRSAs sold, to determine whether these had been mis-sold and if so, what terms of redress the businesses would receive, after it banned them from selling them to SMEs ever again.

Initially, under the Pilot Scheme, the FSA tasked the banks with investigating 30-50 cases of IRSAs sold to businesses, in order to determine whether mis-selling had occurred and if so, what terms of compensation they are owed, as a litmus test for the future of the redress scheme.

After initially not setting a deadline, the FSA then aimed to deliver the results from the banks by the of this year, but this has now been moved to 31 January 2013.

The UK government's PCBS is separately looking at the issues surrounding the claims over mis-selling and says this report is only the "first step" in the PCBS's "work to identify steps to tackle the crisis in banking standards and culture," and that it will return to a number of issues arising from the report in the New Year, as well as how the law, including criminal and civil sanctions, applies to banks and bankers.

It also added that "selling derivatives to SMEs has been a highly profitable activity for [the banks] and investigations of mis-selling of interest rate swaps demonstrate the risk this poses to trust between banks and their customers."

Abhishek Sachdev, managing director at FSA-authorised Vedanta Hedging was an expert witness in the September hearing and was cited in the report and spoke to IBTimes UK about the next stage.

"Further to the Expert evidence we provided recently, it is very welcome news that the PCBS, specifically wishes to investigate the mis-selling of interest rate swaps to SMEs in the New Year. As per the evidence we have submitted (in regards to the sale of derivatives within the ring fence), we are pleased to hear that the PCBS is considering the use of simple derivatives for SMEs within the ring-fence," says Sachdev, who previously worked for the UK Treasury, then subsequently at Lloyds for nearly 10 years, including in its hedging department.

"More work will need to be done to define 'simple' derivatives, but broadly speaking this means derivatives that match the underlying liability of the SME in terms of amount and duration, and not the 'structured' derivatives for which the FSA has found widespread evidence of mis-selling. This will allow SMEs access to derivatives that can help them to manage their risks more effectively," he adds.