Royal Bank of Scotland has set up a £400 million compensation scheme to reimburse customers after the FCA found ‘systematic’ failings in the Bank’s dealings with troubled businesses.
The taxpayer-owned bank has been under sustained pressure after years of defending itself against claims that its Global Restructuring Group deliberately pushed some companies into bankruptcy so it could obtain their assets cheaply and sell them at a profit.
The FCA dismissed the most serious claim that viable businesses were deliberately pushed into administration, but found RBS failed to support struggling SME businesses, pressured businesses to pay off their debts as quickly as possible even where this was would damage those companies in the long-term, failed to treat customers fairly, misled customers and dealt inadequately with complaints.
Perhaps most damningly, the regulator also found RBS failed to handle conflicts of interest inherent in the GRG. Its property division, West Register, was in charge of valuing customers properties, but stood to gain by undervaluing them and purchasing them itself.
Commenting on an independent review the FCA said: “The report found that some elements of this inappropriate treatment of customers should also be considered systematic as it resulted from a failure on the part of RBS to fully recognise and manage the conflicts of interest inherent in GRG’s twin commercial and turnaround objectives and to put in place the appropriate governance and oversight procedures to ensure that a reasonable balance was struck between the interests of RBS and SME customers.”
The regulator said it is still in the process of reviewing the GRG.
RBS Chief Executive Ross McEwan said: “We have acknowledged for some time that mistakes were made.
“Some of our customers went through what was a traumatic and painful experience as a result of the crisis.
“I am very sorry that we did not provide the level of service and understanding we should have done,”.
Specifically, RBS admitted it could have managed the transfer of customers to the GRG unit better and should have explained any changes to management and sales charges more carefully.
The bank is setting up a new complaints process and will automatically refund “complex” fees paid by affected borrowers between 2008 and 2013. The “complex fees” for which affected customers will be refunded include management and monitoring, risk, exit and asset sales fees. RBS did not fully explain whether or how non-complex fees would be refunded.
The FCA said it welcomed news of the complaints process and fee refund scheme, to be independently overseen by former High Court judge William Blackburne.
“While the FCA still needs to see further detail about how the scheme will operate, we believe that it is an important step for RBS to put in place an appropriate complaints review process which should provide certain SME customers with a route to make a formal complaint, should they wish to do so,” the FCA said.
Laith Khalaf, Senior Analyst, Hargreaves Lansdown said: "RBS has been cleared of the most egregious accusations facing the bank, though whichever way you cut it, this is a pretty sorry tale.
"The FCA finds that a large proportion of customers who were transferred to RBS’ restructuring division were poorly treated by the bank, but that by and large this did not result in material financial distress. The regulator has left the door open for further action, however the FCA also notes its powers are limited due to the unregulated nature of the business under scrutiny."
The clashes with hundreds of former borrowers have been among the most reputationally damaging to RBS since the financial crisis.
RBS has previously vigorously contested these allegations but in last month's third quarter results, McEwan admitted the bank had mistreated some customers, paving the way for Tuesday's fee refund scheme launch.
The RBS announcement coincides with an appearance by Andrew Bailey, the FCA chief executive at the Treasury Select Committee later on Tuesday.
While the offer of fee refunds and setting up a new complaints scheme could help the bank avoid costly litigation linked to faults at GRG, it still faces a potential class action from hundreds of businesses, which could potentially run into billions of pounds.
