RBS facing £400m bill to compensate small business customers
Bank apologises for poor treatment during financial crisis and will automatically refund fees
A report from the Financial Conduct Authority did not find that RBS deliberately drove small businesses to the brink in order to increase its own profits. Photograph: Stefan Wermuth/Reuters
Royal Bank of Scotland has apologised to small business customers as it revealed a £400m bill to compensate them for poor treatment in the wake of the banking crisis.
After at least three years of complaining of bad service from the bailed-out bank, small businesses will receive refunds of the fees they were charged and will be allowed to make fresh complaints about their treatment between 2008 and 2013 in a process that will be overseen by a retired high court judge.
Ross McEwan, the chief executive of RBS, 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.”
A review is under way into whether bonuses should be withheld from former and current staff involved in the bank’s now now-defunct global restructuring group (GRG), which is at the heart of the complaints.
The allegations first surfaced in 2013 when Lawrence Tomlinson, a businessman who was an adviser to the then business secretary, Sir Vince Cable, compiled a dossier alleging the bank deliberately wrecked small businesses to make profits.
Some 12,000 small businesses were forced into GRG but only 4,000 will automatically receive a refund of “complex” fee. In total, some 8,000 were potentially viable when they entered GRG, while 4,000 were facing insolvency.
Confirmation of the compensation plans – details of which began to emerge on Monday – immediately sparked concerns that the sum being aside by the 73% taxpayer-owned bank was inadequate.
“Given the damage to the lives of RBS’s customers, £400m is wholly inadequate and is a cynical attempt to evade accounting fully for the consequences of RBS GRG’s action. We are disgusted by this proposal,” said David Stewart, of the RBS GRG Business Action Group, which has more than 500 members demanding £2bn in compensation. Another group, RGL Management, is pressing on with a legal claim of at least £1bn.
“The FCA report appears to be utter whitewash,” said Stuart McCredie, who ran a business that entered GRG.
Gary Greenwood, analyst at Shore Capital, said the bill was “not as big as feared and may also take some heat out of the situation”. The bank’s shares were up 0.4% at 187.3p on Tuesday.
The RBS announcement was timed to coincide with an appearance by Andrew Bailey, chief executive of the Financial Conduct Authority, at the Treasury select committee which has been pressuring the regulator to publish a much-delayed report into GRG.
In an update, the FCA said “isolated examples of poor practice were identified”, at RBS but dismissed the most damning allegations that the bank deliberately drove small business to the brink to make a profit.
But it also concluded that there was evidence of systemically poor treatment of small business customers.
Bailey signalled that further delays to the report – commissioned from legal experts Promontory and Mazars – were likely as it would have to undergo Maxwellisation, where anyone facing criticism is allowed to comment, before publication.
The FCA also cautioned that the activities carried out by GRG were largely unregulated. “Therefore, the FCA’s powers are limited in this area,” the FCA said. However, it does not necessarily indicate the bank will escape financial sanction as the regulator said it was “currently assessing what further work may be needed given the findings in the report”.
McEwan has repeatedly defended the bank against claims that it deliberately tried to profit from small business customers and RBS repeated on Tuesday that it had lost more than £2bn in lending to small businesses.
He said the situation could not be tackled until now – even though a report commissioned from Clifford Chance in 2014 had highlighted the issues of poorly structured fees – because the FCA review had been continuing.
Promontory examined 207 cases and covered a six-year period, analysing 323 gigabytes of data – approximately 1.5m pages and 270,000 emails.
But it also concluded that there was evidence of systemically poor treatment of small business customers.
Bailey signalled that further delays to the report – commissioned from legal experts Promontory and Mazars – were likely as it would have to undergo Maxwellisation, where anyone facing criticism is allowed to comment, before publication.
The FCA also cautioned that the activities carried out by GRG were largely unregulated. “Therefore, the FCA’s powers are limited in this area,” the FCA said. However, it does not necessarily indicate the bank will escape financial sanction as the regulator said it was “currently assessing what further work may be needed given the findings in the report”.
McEwan has repeatedly defended the bank against claims that it deliberately tried to profit from small business customers and RBS repeated on Tuesday that it had lost more than £2bn in lending to small businesses.
He said the situation could not be tackled until now – even though a report commissioned from Clifford Chance in 2014 had highlighted the issues of poorly structured fees – because the FCA review had been continuing.
Promontory examined 207 cases and covered a six-year period, analysing 323 gigabytes of data – approximately 1.5m pages and 270,000 emails.
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