RBS facing £400m bill to compensate small business customers

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Bank apologises for poor treatment during financial crisis and will automatically refund fees.

Royal Bank of Scotland has apologised to 12,000 small business customers after admitting it faced a £400m bill to compensate them for poor treatment during the banking crisis. After at least three years of complaining of bad service from the bailed-out bank, small businesses will automatically receive refunds of the fees charged and allowed to make fresh complaints about their treatment between 2008 and 2013. 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.” Confirmation of the compensation for small businesses came as Andrew Bailey, the chief executive of the Financial Conduct Authority, prepared to appear before the Treasury select committee. Ahead of Bailey’s evidence, the FCA produced an update on a much-delayed report into what went wrong in RBS’s now-defunct global restructuring group (GRG) but did not publish the long-delayed report.

Allegations surfaced in 2013 when Lawrence Tomlinson, a businessman who was an adviser to the then business secretary, Sir Vince Cable, compiled a dossier of allegations that RBS was deliberately wrecking small businesses to make profits for itself. At the time, Tomlinson said he been approached by businesses which had ended up in GRG and had their properties sold to the bank’s specialist property arm, West Register. John Mann, a Labour MP who sits on the committee, said: “A £400m compensation scheme simply isn’t enough, we the taxpayers and part owners of RBS along with their customers need to know why this was allowed to happen.” The FCA said that “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.

Of the 12,000 customers put into GRG, around 4,000 were not viable, the FCA said. “Of the potentially viable [small business] customers transferred to GRG, the report concluded that most of them experienced some form of inappropriate action by RBS. However, the report also concluded that, in a significant majority of cases, it was likely that inappropriate actions did not result in material financial distress to these customers,” the FCA said. The regulator, which first promised to publish the report in December 2015, said it had been involved in developing the RBS compensation scheme. A new complaints process will be overseen by Sir William Blackburne, a retired high court judge, while complex fees paid by small businesses in the UK and Republic of Ireland will automatically be refunded. McEwan said: “Although the FCA review into the historical operation of GRG continues, we believe that now is the right time to deal with the areas where we accept some customers were let down in the past. “The culture, structure and way RBS operates today is fundamentally different from the period under review. We have made significant changes to deal with the issues of the past, so that the bank can better support SME [small and medium enterprise] customers in financial difficulty whilst also protecting the bank’s capital.” He 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 business.

While the FCA published the findings of the report – commissioned from legal experts Promontory and Mazars – it 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 from the regulator. “The FCA is currently assessing what further work may be needed given the findings in the report. The FCA will provide a further update on this matter when it is in a position to do so,” the City regulator added. It said Promontory examined 207 cases and covered a six-year period, analysing 323 gigabytes of data – approximately 1.5m pages and 270,000 emails. Gary Greenwood, analyst at Shore Capital, said the compensation bill was “not as big as feared and may also take some heat out of the situation”. A review of the Tomlinson allegations commissioned by RBS from Clifford Chance in 2014 had highlighted the issues of poorly structured fees. McEwan said the situation could not be tackled until now as the FCA review was on-going.

Jill Treanor

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