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Watchdog's full investigation into 'highly damaging' RBS SME scandal published

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
RBS has faced an investigation into their Global Restructuring Group. Photo: Photo: Daniel Leal-Olivas/AFP/Getty

The UK’s banking watchdog on Thursday published a full report into its investigation of the scandal at the Royal Bank of Scotland’s (RBS.L) small business turnaround unit.

The report concluded that no action will be taken despite “systemic and widespread inadequate conduct.”

The Financial Conduct Authority (FCA) on Thursday published a 78-page report of its investigation into RBS’s Global Restructuring Group (GRG), a financial crisis-era unit of the bank meant to help turnaround struggling small and medium-sized businesses (SMEs).

The investigation found “systemic and widespread inadequate conduct within GRG” and the FCA said the unit “clearly fell short of the high standards its customers expected.” However, the report said “our investigation also concluded that the evidence does not suggest that management sought to treat customers unfairly.”

“GRG has been highly damaging for those customers impacted and more widely for the reputation of the banking industry,” FCA CEO Andrew Bailey said in a statement. “Combined with other issues that have impacted SME’s, it is important for all who work in this sector to regain the public’s trust.”

The GRG scandal

GRG, which operated between 2005 and 2013, was accused of pushing companies into bankruptcy to be asset stripped by RBS. Many of the SMEs that fell into GRG owed money to RBS. Business owners believed they were being put into administration to allow RBS to sell off their assets to pay back loans.

The FCA said it did not find systematic evidence of businesses being put in a worse financial position to allow RBS to asset strip them.

But GRG failed to communicate with customers about what it was doing, the FCA said. Some customers lost their homes as a result of their businesses collapsing and GRG staff “did not show enough understanding of the extreme emotional stress.”

“The firm’s relations with its customers were often insensitive, dismissive and sometimes too aggressive; these failings made an already stressful situation worse,” Bailey wrote in the forward to the FCA’s report.

It also failed to appropriately manage the conflict of interest between GRG repairing the businesses in its care and its objective of helping RBS’ financial performance.

READ MORE: Outgoing RBS CEO McEwan leaves with 'huge blot in his copy book'

Despite the investigation’s findings, the FCA has not taken action against RBS or any of its employees.

“Our investigation has found that GRG clearly fell short of the high standards its clients expected but it was largely unregulated and so our powers to take action in such circumstances, even where the mistreatment of customers has been identified and accepted, are very limited,” Bailey said.

He added that new rules mean that senior managers in banks could be prosecuted in similar cases if they happen today.

The publication of the report marks the end of the FCA’s investigations into RBS and means there is no chance of any action being taken by the regulator.

“I know that many customers of GRG... disagree with our decision to not take enforcement action, but I hope that this report will explain why we reached that decision,” Bailey wrote in the forward to the report.

RBS: ‘We continue to focus on putting things right’

Royal Bank of Scotland Chairman Howard Davies. Photo: Suzanne Plunkett/ Reuters

RBS chairman Howard Davies said in a statement: “We welcome the conclusion of this investigation and the confirmation that no further action will be taken.

“The FCA has once again confirmed that no evidence was found to support allegations that RBS artificially distressed and transferred otherwise viable businesses to GRG or deliberately made them worse off to profit from their sale, restructuring or insolvency. It also found no evidence that any member of GRG’s senior management sought to treat customers unfairly or behaved in any other way that could call their honesty and integrity into question.

“The bank has acknowledged that some SME customers did not receive the treatment they should have done while in GRG during the relevant period and has apologised. We continue to focus on putting things right for these customers through our complaints process, with independent assurance and oversight from a retired High Court Judge, Sir William Blackburne. The FCA confirmed that this was an appropriate step to take.”

RBS set aside £400m in 2016 to compensate mistreated businesses. The scheme was shut last year.

Davies said: “The way the bank deals with business customers in financial difficulty today is fundamentally different to the aftermath of the financial crisis, during what was a hugely challenging time for the bank, its customers and the wider economy. We are committed to ensuring that past mistakes cannot be repeated.”

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Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.

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