Amid allegations of unscrupulous conduct on the part of its business turnaround unit, Royal Bank of Scotland is the target of growing demand for an investigation. The main thrust of the accusations is that the taxpayer supported lender pushed several fundamentally solid enterprises out of business in order to boost the bank’s own bottom line.

Business Secretary Vince Cable has recently forwarded a dossier filled with complaints lodged against RBS and its own global restructuring group (GRG) to the City regulators. The GRG is responsible for managing a risky portfolio of loans and also has the ability to cancel loan deals, charge extremely high rates of interest and assess substantial penalties.

RBS under Scrutiny

The aforementioned report was assembled by business magnate Lawrence Tomlinson and is now being published in the aftermath of several months of ongoing investigation. Multiple allegations against RBS are included in the dossier compiled by Tomlinson, who is presently affiliated with the Department for Business, Innovation and Skills.

Mr. Cable has sent the report onward to the Prudential Regulation Authority as well as the Financial Conduct Authority, stating that the accusations contained therein are quite serious and in need of urgent response and decisive action.

According to accusations contained in the report, companies that were not clearly in dire financial straits were diverted towards GRG, often due to very minor or immaterial breaches of loan requirements. Some of these technicalities included things such as late filing of certain nonessential financial information. These businesses were subsequently charged exorbitant fees and interest rates, sometimes resulting in their ultimate demise. At that point, RBS was able to purchase the assets of those firms at bargain prices, all to benefit its own West Register subsidiary, the dossier alleges.

The report further alleges that estate agency firms were placed into emergency administration following “desktop” asset valuations that involved no personal visits to the properties in question. Revaluations of properties were also involved, according to the dossier, which were based on implausible, inaccurate “fire sale” foundations.

In addition to the claims that businesses were sent into GRG on questionable grounds, the report also alleges that hardly any of those firms were successfully turned around. The majority, according to the allegations, either got stuck in GRG limbo or had to enter the bankruptcy process.

Pledging to get to the bottom of the accusations against RBS, Chancellor George Osborne called the situation “shocking.” He went on to state that banks ought to be working on behalf of small business enterprises and for working families. Pursuing the allegations in the report, he said, furthers that broader objective.

RBS issued a statement claiming that GRG succeeds in turning around the majority of businesses referred to it, but that because the firms in the program are necessarily under substantial financial strain, there will always be some that are beyond being saved.

The report prepared by Tomlinson is being published contemporaneously with the final version of a report by Sir Andrew Large, formerly of the Bank of England. He was engaged by RBS to examine its own SME lending enterprise as well any involvement with GRG.

The initial findings of that report were released a month ago with the third-quarter RBS results. The preliminary draft included recommendations that the bank make organizational changes to its small business lending operation. It also sounded the alarm concerning GRG’s activities.

In the aftermath of that initial reporting, RBS launched its own GRG review process, and it is anticipated that the bank will begin exploring more effective methods for managing distressed firms.

Taking the helm in October as chief executive of RBS, Ross McEwan has initiated yet another review process of the bank’s operations. The outcome of that study is planned for February release, when the bank’s full-year numbers are published.


Financial Conduct Authority Statement

Commercial lending is not a regulated activity under the Financial Services and Markets Act (FSMA) 2000 (Regulated Activities) Order 2001. Nevertheless, the allegations in these reports gave the FCA concerns as to whether RBS has treated customers appropriately, in particular those in financial difficulties. If substantiated, such allegations may also indicate wider concerns in relation to governance and culture within RBS. The FCA expects firms to act with integrity across all of their activities.

Accordingly, the FCA is taking the following actions:

It has agreed with RBS that an independent skilled person will be appointed in accordance with the FCA’s power under section 166 of FSMA to review the allegations in the reports against RBS’ practices. The skilled person must have the necessary skills to carry out the review effectively and will report to the FCA within an agreed timescale.

If the findings from the review reveal issues which come within the FCA’s remit, the FCA will consider further regulatory measures. Separately, it is writing to all other relevant banks seeking confirmation that they are satisfied they do not engage in any of the poor practices alleged in the reports.

Clive Adamson, Director of Supervision at the FCA, said:

“These allegations, if proved, raise serious concerns about how banks’ treat their customers. An SME’s relationship with its bank is essential for any business to have a chance to succeed, and claims like the ones made threaten to undermine that. We expect all firms to act with integrity and put customers at the heart of their business.”

View FCA Statement : www.fca.org.uk/statement-regarding-royal-bank-of-scotland

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Tim Capper reports on Financial Mis-Selling for Maple Leaf Financial. Our aim is to ensure you get honest advice and proper guidance to ensure a suitable recommendation can be made to pursue a financial claim


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Tim Capper

Bringing you financial news and information in plain english for Maple Leaf Financial. My aim is to help readers understand these often complex financial instruments.