The Financial Conduct Authority (FCA) has identified “significant concerns” over “gaps” in RBS’s support to SME customers between 2008 and 2013.
The Authority has published an interim summary of the report on RBS’s treatment of SME clients that had been referred to the bank’s own business support unit, Global Restructuring Group.
An independent review of GRG’s business had been commissioned in January 2014, through financial services firm Promontory, following allegations of poor practices by businessman Lawrence Tomlinson in November 2013. The full report was handed to the FCA in September of last year.
While the most serious of Tomlinson’s allegations – that GRG had engineered SMEs’ defaults in order to seize their assets – was not upheld, the report did find that RBS showed failings in:
- communicating with SME clients, specifically in singling out key risks for SMEs and assisting “not financially sophisticated” customers with terminology;
- explaining rationales behind referrals to GRG;
- balancing price increases, in order to offset risk, with long-term viability of clients’ operations;
- and implementing the FCA’s initiative, Treating Customers Fairly (TCF), including when it came to complaints.
It also singled out the conflict of interest in the structure of West Register, GRG’s property acquisition arm, as well as an “undue focus” on Equity Participation Agreements (EPAs), which allowed continued financing in exchange for the bank acquiring equity in the borrowing company.
Though the report “identified isolated examples of poor practice,” it added that “there was no widespread or systematic inappropriate treatment of customers”.
Specifically, it did not find any widespread practices of:
- artificially engineering bankruptcy to facilitate the transfer of customers to GRG, or, on part of West Register, setting sights on an SME’s assets before its referral to GRG;
- requesting personal guarantees and fund injections from the business owner after GRG had already determined they wouldn’t support their case;
- referring businesses to GRG on the basis of the assets’ value, rather than actual need.
Regarding the last point, the report specified that “SME customers transferred to GRG were exhibiting clear signs of financial difficulty.”
It added that RBS had “also put forward voluntary proposals to review and refund certain complex fees [and] set up a complaints scheme,” which will include an appeal stage. Both the initial complaint and the appeal phases will be overseen by retired High Court judges.
RBS has also announced an automatic refund of fees for SMEs which were under management of GRG between 2008 and 2013.
In a statement on Monday, it said: “The bank has previously acknowledged that, in some areas, it could have done better for SME customers in GRG and again apologises for these mistakes.
“Specifically, the bank could have managed the transition to GRG better and should have better explained to customers any changes to the prices or complex fees it was charging. The bank accepts that it did not always communicate as well or as clearly as it should have done and that it did not always handle complaints well.
SMEs affected by the case are planning to bring forward a class action case through solicitors Howe+Co.