FCA considers further action on RBS turnaround unit

23 October 2017, 15:23

The City watchdog is assessing whether it can take "further action" over state-backed Royal Bank of Scotland's controversial treatment of small businesses, after an independent review.

The review was launched after allegations that RBS's Global Restructuring Group (GRG), a unit that was supposed to help struggling firms get back on their feet, was instead deliberately making things worse in order to pick up assets on the cheap.

An interim summary of the review, published by the Financial Conduct Authority (FCA), found 92% of potentially viable businesses that went into GRG had "experienced some inappropriate actions" - confirming an earlier leak.

Some firms were subjected to sudden requirements to reduce their lending facilities, price increases that paid little regard to their circumstances, and a failure to consider turnaround options.

But the review also found that, overall, 34% of the cases sampled were already "clearly not viable", and did not uphold the most serious claims of mistreatment by the bank.

The review also recommended that small businesses are given more protection in their largely unregulated dealings with banks.

FCA chief executive Andrew Bailey said it was investigating the report and "focussing on whether there is any basis for further action within our powers".

But he also pointed to the lack of regulation under which it might act.

Mr Bailey added that the review "highlighted a gap in support for smaller businesses with genuine grievances about business banking conduct issues that could benefit from impartial assessment and quick resolution".

The report concluded that the FCA should work with the Government to extend the protections available to small and medium enterprise (SME) customers.

It also called for work to ensure "adequate protections for the less sophisticated SMEs" including extending rules on unfair contract terms and greater access to the financial ombudsman - a service which can currently only be used by the smallest firms.

Mr Bailey said: "Commercial lending activity is largely unregulated in the UK, and there are no 'conduct of business' rules against which to assess GRG's treatment of SME customers.

"We expect high standards from the firms we regulate, but we cannot set or enforce these high standards in areas of unregulated activity carried on by these firms.

"The FCA will make a constructive contribution if invited to do so by lawmakers but ultimately it is for Parliament to consider and approve recommendations about widening our statutory remit."

RBS chief executive Ross McEwan said: "I am pleased that the regulator has confirmed the findings from last November and that the most serious allegations made against the bank have not been upheld.

"We have acknowledged for some time that mistakes were made and have apologised that we did not always provide the level of service and understanding we should have done for these customers in the aftermath of the financial crisis."

Last November, RBS said it would put aside £400m as part of a plan to refund SMEs. The FCA, which helped developed the plans said these were "appropriate steps for RBS to take".

But a spokesman for the GRG Action Group, which represents more than 500 businesses, said the procedures set out by the bank for obtaining redress were inadequate.

He said: "Far from drawing a line under this affair, today's report is just the start of the long journey to justice for GRG's victims."

RBS remains more than 70% taxpayer owned after its rescue during the financial crisis.

The publication of the review comes days after Police Scotland said that it was assessing reports it had received regarding RBS and was carrying out enquiries to assess "if there is any criminality present" in the allegations.