Regulator ducks further
action on RBS scandal

MPs and victims criticise FCA claim that its powers are insufficient to pursue bank's restructuring unit over mistreatment of business customers

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The financial regulator’s refusal to take further action against Royal Bank of Scotland over its treatment of business customers is “unacceptable”, according to Yorkshire MP Kevin Hollinrake, co-chair of the All-Party Parliamentary Group for Fair Business Banking.

The Financial Conduct Authority (FCA) had been investigating the activities of the bank’s restructuring unit in the aftermath of the 2008 financial crash.

RBS transferred around 16,000 of its small-business customers it said were struggling to its Global Restructuring Group (GRG), promising the unit would help owners rebuild their finances.

Instead, many were forced to take expensive new loans that incurred hefty fees and punitive fines for late payment. Others were pressurised to sell their assets cheaply, often to West Register, the bank’s own property division.

An interim report by the FCA in February described GRG staff behaviour as “disgraceful”, “inappropriate”, “systematic” and “endemic”. Customers felt “poorly treated, bullied, threatened, often exploited”.

But despite that, the interim report drew short of apportioning blame and found no evidence that the taxpayer-backed RBS deliberately transferred customers to profit from them. And it only saw the light of day at all because the Treasury Select Committee, exasperated at the FCA’s refusal to publish, invoked parliamentary privilege to release it.

Last week, the FCA said it had completed the second phase of its inquiry, in which it investigated whether further action was merited against senior management. But FCA director Andrew Bailey’s decision that its powers do not apply to an unregulated business such as GRG, and his assertion that any action would have had limited chances of success, have drawn the ire of MPs, GRG victims and their lawyers.

“This is hugely disappointing,” said Hollinrake. “Phase II was supposed to follow up the scandalous mistreatment revealed in phase I but the FCA has decided it can’t blame anybody. It’s unfair to victims and to the wider economy.”

Hollinrake said it was “incredible” that the FCA had found no evidence that RBS had deliberately sought to profit from pushing businesses into GRG, despite the GRG staff behaviour detailed in its own report, and added that he believed the regulator did have the powers to pursue its investigation further.

“I have no confidence the FCA has robustly investigated the complaints or used all their powers,” he said.

He pointed out that the banks were responsible for the financial crash and therefore for austerity, “for which we are all still paying”.

He added: “The FCA needs to release its full report. Its promise to release a ‘fuller’ report is not satisfactory.

“Then we – parliamentarians, press and the public – can see if they were right and make a judgement. The FCA may be right that they have no powers – although that seems incredible – but if that’s the case Parliament can look at new laws to ensure it won’t happen again.”

“We won’t let this matter rest until we get justice.”

Calling the GRG scandal the “biggest mass theft in corporate history”, May said he hoped for further parliamentary pressure

Clive May, who says GRG caused the downfall in 2013 of his Flintshire construction business after he was mis-sold a loan and then had his overdraft facilities withdrawn, told Big Issue North he was “not surprised” by the FCA’s decision to take no further action.

May believes RBS was trying to force his business into the ground in order to profit from a government-backed guarantee for the loan – a claim RBS has denied.

“The inquiry was never designed to charge RBS,” said May. “It was always designed to clear their backs.”

North Wales Police has passed a file detailing May’s complaints about GRG to the Crown Prosecution Service for advice.

Calling the GRG scandal the “biggest mass theft in corporate history”, May said he hoped for further parliamentary pressure but also called for a judicial review into the actions of GRG.

“Evidence should not be given to the bank to investigate,” he said. “Why is it acceptable for RBS to mark their own homework?”

His disappointment was echoed by Nicky Morgan, the former cabinet minister who is now chair of the Treasury Select Committee. She said: “It will be deeply disappointing and bewildering for those who got caught up in GRG’s actions that the FCA is not able to act. This demonstrates the need for a change in how lending for SMEs is regulated.

“The government should stand ready to introduce any legislation required when it sees the outcome of current reports on redress and should also urgently consider what additional powers the FCA requires to act in cases such as GRG.”

Lawyer Alison Loveday. Main photo: MP Kevin Hollinrake

Businesses that have been compensated by GRG often face gagging orders, while others are pursuing legal cases, so few will go on the record. In February, Alison Loveday, partner at Manchester law firm Kennedys, which has dealt with hundreds of affected RBS customers, said the “vast majority” were not “chancy business people who had overextended themselves”, as the bank made out. Instead, they were “everyday people” who trusted their bank manager.

Speaking after the FCA announcement last week, Loveday questioned its assertion that it could not act because GRG was unregulated.

“This is in sharp contrast to the ‘public interest’ that caused the FCA to commence the investigation,” she said. “If it was considered important enough to intervene then and ‘systematic inappropriate conduct’ was revealed by the investigation, it is difficult to understand why no action is being taken now.”

Although she welcomed changes in 2016 that gave the FCA some ability to supervise the way senior management of banks account for the treatment of their SME customers, and its belated recognition that it must more actively oversee the GRG complaints system, Loveday added: “The assertion that there is no objective yardstick to measure behaviour against is surprising, particularly given the more recent focus on corporate governance. Standards of honesty, fairness and not destroying a customer’s business for your own ends shouldn’t need to be in a rule book.”

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