London - Britain's banks have paid out £500 000 of the £3bn they have set aside to compensate small firms mis-sold complex interest rate hedging products says the Financial Conduct Authority (FCA).
The bill is the latest faced by banks, which are also compensating customers for mis-sold payment protection insurance (PPI).
Two British banks have also been fined for manipulating the London Interbank Offered Rate, or Libor market benchmark.
The Federation of Small Businesses said the FCA had "laid bare depressing figures", which showed only 10 out of over 15 000 affected small businesses had been offered compensation for mis-sold interest rate hedging products (IRHP).
"We are quickly losing confidence in the banks and the regulator as this scheme remains unbelievably slow.
"We warned that if the process isn't quick and fair it would risk litigious claims, and further undermine confidence between small firms and the banks," the lobby group said on Wednesday.
Redress
Interest rate swaps were designed to protect smaller companies against rising interest rates but when rates fell, they had to pay large bills, typically running to tens of thousands of pounds.
Companies also faced penalties to get out of the deals, which many said they had not been warned about.
The review of potentially mis-sold IRHP, set up by the FCA, began in May.
The regulator said in its first update on how banks were responding to claims that by the end of August offers of redress had been accepted by businesses totalling half a million pounds.
This figure is expected to increase rapidly over the coming months with 210 offers already sent out to customers and with a further 1 700 due to be sent shortly, the FCA said.
Data from the FCA showed differing rates of progress in dealing with cases at Britain's biggest four banks.
Barclays has reached the redress offer and acceptance stage for 92 sales, with 68 at HSBC, 13 at Lloyds and 20 at RBS.
The banks have taken on 2 800 staff to review more than 30 000 cases and the FCA expects most customers will be told by the end of the year about the result of their review.
More than 25 000 sales or 85% of the total are being assessed.
Capital
The FCA data showed majority state-owned RBS to have more claims under review than Lloyds, Barclays and HSBC combined.
RBS is assessing 10 500 cases, compared with 3 400 at Barclays, 3 300 at HSBC and 2 700 at Lloyds.
However RBS has set aside £750m for compensation so far - far less than Barclays' £1.5bn, while Lloyds and HSBC have each set aside £400m.
"If taken at face value, RBS appears the most likely bank to require material additional provisions for the IRHP issue," said Investec analyst Ian Gordon.
Money set aside by banks to compensate for mis-selling PPI has reached around £15bn so far, forcing lenders to beef up their capital positions.