On 31 July 2018, the FCA published a statement on its investigation into the RBS’s treatment of small and medium-sized enterprises (SMEs) transferred to its Global Restructuring Group (GRG).
The FCA explained that in response to the allegations made about the GRG, it commissioned an independent review to be carried out by a skilled person. That review found no evidence that “RBS artificially distressed and transferred otherwise viable SME businesses to GRG to profit from their restructuring or insolvency“.
However, it found a number of circumstances where it appeared that the customers were not treated fairly and reasonably by GRG. The inappropriate treatment of SME customers which was found to be widespread included:
- a failure to comply with the Bank’s own policy in respect of communicating with customers around transfer, where the standard of much SME customer communication was poor and in some cases misleading;
- a failure to support SME businesses in a manner consistent with good turnaround practice;
- placing an undue focus on pricing increases and debt reduction without due consideration to the longer term viability of customers;
- a failure to document or explain the rationale behind decisions relating to pricing following transfer to GRG;
- a failure to ensure that appropriate and robust valuations were made by staff, and carrying out internal valuations based upon insufficient or inadequate work, especially where significant decisions were based on such valuations;
- a failure by RBS to adopt adequate procedures concerning the relationship with customers and to ensure fair treatment of customers;
- a failure to identify customer complaints and handle those complaints fairly;
- a failure to handle the conflicts of interest inherent in the West Register model and operation; and
- a failure to exercise adequate safeguards to ensure that the terms of certain upside instruments – Equity Participation Agreements and Property Participation Fee Agreements were appropriate.
The FCA added that such failures are significant and would usually lead to a disciplinary action if they occurred in a regulated business. However, the operation of GRG is largely unregulated, and the regulatory rules relating to, for example, the conduct of business, do not apply to it. The, largely, unregulated nature of GRG’s business also means that the FCA does not have the powers to take disciplinary action, such as imposing a fine on RBS or specific individuals. However, the FCA does have the power to ban individuals form working in the regulated financial services industry if they are not “fit and proper”, even if their conduct took place in an unregulated area. Nevertheless, the FCA considered, taking all relevant matters into account, that a prohibition case against any senior manager of GRG at the time would not have reasonable prospects of success.
The FCA noted that the new Senior Managers Regime, introduced after the relevant events took place, would allow it, in appropriate cases, to fine senior managers in relation to unregulated activities, but this regime cannot be applied retrospectively. It added that the implementation of the Senior Managers Regime means that “while commercial lending remains unregulated, the overall regulatory situation today is different from what it was during the relevant period”.
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