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A report by the financial watchdog, which recommends no further action against Royal Bank of Scotland's controversial restructuring business, has been called a "whitewash".

A group of MPs said the Financial Conduct Authority failed to find out whether the bank's management were involved in the group's activities.

RBS's Global Restructuring Group has been accused of shutting healthy firms.

The FCA said its conclusions were backed up by an independent report.

However, MPs were highly critical of the regulator.

"This report is another complete whitewash and another demonstrable failure of the regulator to perform its role," said Kevin Hollinrake, the co-chair of the All-Party Parliamentary Group on Fair Business Banking.

Mr Hollinrake pointed out that the FCA was supposed to consider the root causes of the failures at RBS and whether they were known about, or authorised by RBS management.

"They have manifestly failed to do this," he said.

Analysis: Andy Verity, BBC Economics Correspondent

Buried deep in today's final report by the Financial Conduct Authority (FCA), on page 69 is a quote that throws an interesting light on the decision by Andrew Bailey, chief executive of the regulator, not to take action against senior managers in charge of RBS Natwest's Global Restructuring Group (GRG) for the mistreatment of thousands of business customers.

For many of them "mistreated" is a horrible understatement: they were ruined, losing just their livelihoods but often their homes, their marriages, and their physical or mental health. Not a few took their own lives.

Page 69 refers to an unnamed senior manager who attended meetings with the Asset Protection Agency, the division of Her Majesty's Treasury in charge of supervising the Asset Protection Scheme. The APA oversaw the efforts of RBS to shrink the amount of lending it was doing, including by pulling the plug on loans to small business owners via GRG. The senior manager says the following:

"They [the APA] would have loved us to just flog a bunch of those SME customers for next to nothing and walk away."

It also reveals that when the RBS senior manager argued the bank should minimise losses and maximise recoveries, a senior manager at the APA said the priority should instead be "maximising net present value". That's revealing because it means the APA didn't want RBS to support customers who weren't cash-positive for the bank - often through no fault of their own eg because they had a loan linked to base rate.

Customers asking for time to trade themselves out of trouble wouldn't be given much chance. But this was a government agency saying this. It would be good to know names - but the FCA doesn't give them.

New tribunals?

The FCA said it had consulted independent experts who said its conclusions were "correct and reasonable".

A review into the GRG turnaround unit published last year found it mistreated thousands of small firms.

Some firms said they were undermined and stripped of their assets after they were transferred into the RBS division between 2008 and 2013.

Nicky Morgan, chair of the Treasury Committee, which has also been looking into banking practices, said the FCA should now be given the power to regulate commercial lending to protect small companies (SMEs).

"The government should also reconsider its rejection of the committee's proposal for the introduction of a Financial Services Tribunal for SMEs to settle disputes with their bank," she said.

Pushed to failure

Back in July, when an interim report was published, the regulator said its powers were "very limited".

Image caption The FCA said it had consulted independent experts

It argued there was no "reasonable prospects of success" when it came to action against senior managers.

In today's report, the regulator said it found "no evidence that any member of senior management was dishonest or lacking in integrity".

Mr Hollinrake said it is difficult to reconcile the FCA's findings with what happened, and called upon the FCA to publish a "full account of its findings including naming those responsible for the shameful mistreatment of thousands" of UK small businesses.

RBS Chairman, Howard Davies, said: "We welcome the conclusion of this investigation and the confirmation that no further action will be taken."