Watchdog will take no action despite evidence of business customers being mistreated after 2008 crash

This article is more than 1 year old

This article is more than 1 year old

A report by the City watchdog into the scandal at Royal Bank of Scotland’s turnaround unit has been described as a whitewash after the regulator confirmed it would not punish the bank for mistreating business customers following the financial crash.

The Financial Conduct Authority’s final report into RBS’s now-defunct Global Restructuring Group (GRG) said it would take no action against the lender or senior staff despite evidence of “systemic and widespread” mistreatment of small- and medium-sized business customers between 2008 and 2013.

“The firm’s relations with its customers were often insensitive, dismissive and sometimes too aggressive; these failings made an already stressful situation worse,” said Andrew Bailey, the regulator’s chief executive.

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The FCA also found that RBS failed to manage a conflict of interest involving the bank’s property firm, West Register, which was used to buy assets from distressed companies – including companies that had been diverted into the GRG unit.

However, the FCA dismissed allegations that the bank pushed thousands of business customers into administration in order to strip them of their assets and buy them more cheaply. In some cases, victims say they were forced to restructure loans that resulted in extortionate fees and higher interest rates, which pushed them further into financial difficulty or administration.

The Conservative MP Kevin Hollinrake hit out at the FCA’s conclusions and decision to withhold names of senior managers he said were responsible for the mistreatment of thousands of SMEs.

Facebook Twitter Pinterest Kevin Hollinrake MP described the report as ‘another complete whitewash’. Photograph: Ian Hinchliffe/Alamy

The co-chair of the all-party parliamentary group on fair business banking and finance said: “This report is another complete whitewash and another demonstrable failure of the regulator to perform its role.”

The SME Alliance, a small business pressure group, said it was “deeply disappointed” that despite evidence of mistreatment, no bankers had been held to account.

“[The FCA] seems to have concluded none of RBS, its staff or its senior management could or should be held accountable in any way. It begs the question of why the FCA started an investigation or produced a report at all when the only real beneficiaries will have been the authors?,” said Nikki Turner, director of the SME Alliance.

Clive May, a victim of the GRG unit, said he was not surprised by the FCA’s response, given his experience with the regulator throughout his “long, arduous journey” trying to get to the bottom of a case he believes amounts to fraud.

“I was never really thinking the FCA were likely to do anything.”

The north Wales-based bricklayer said RBS pushed him into taking a special government-backed loan in 2010 before cutting his overdraft limit. His banking costs rose significantly before he was diverted into the GRG division, unbeknown to him, where his business then collapsed.

“The whole episode is shocking,” the 55-year-old said.

The FCA said RBS was “under unprecedented stress” after its government bailout during the 2008 financial crisis, when the number of customers entering the GRG unit surged.

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Bailey stressed that RBS has taken action and responded to the FCA’s recommendations. But with commercial lending still unregulated in the UK, business customers do not fall under the financial watchdog’s jurisdiction. That anomaly has allowed RBS and GRG’s senior managers to escape disciplinary action despite evidence of mistreatment in the FCA’s report.

The FCA’s investigation, first launched in 2014, said the regulator was ultimately powerless to take action, given that business lending is outside its jurisdiction.

The Treasury select committee has urged the government to reconsider regulating business lending. “Otherwise, scandalous events such as those at GRG could recur,” said Nicky Morgan, the Conservative MP who chairs the committee.

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Bailey said businesses should take comfort in new rules, including the new senior managers and certification regime,which he said would now help hold misbehaving bankers to account. He also highlighted the extended powers granted to the Financial Ombudsman Service, which now covers complaints from a wider range of SMEs.

However, the FCA has refused to speculate whether it would have punished RBS under the new rules. “We cannot say whether we would have been able to bring successful cases against RBS senior management,” it said.

The RBS chairman, Howard Davies, said the bank welcomed the FCA’s final report, which it said drew a line under the GRG affair.

“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,” Davies said.