Last week’s release of an interim summary of an independent review into Royal Bank of Scotland’s (RBS) treatment of distressed small business customers may signal the end – or perhaps the beginning of the end – of an extremely challenging period for RBS.
As discussed here, public concern about the treatment of customers transferred to the RBS workout area – the Global Restructuring Group (GRG) – followed the issue of the so-called ‘Tomlinson Report’, in 2013.
The report – highly critical of GRG, and those who advised it – generated an immediate media and political response, and led to the UK Financial Conduct Authority (FCA) seeking an independent ‘Skilled Person’ review of the allegations by consulting firm Promontory Financial Group and accountants Mazars.
Only later did it emerge that Lawrence Tomlinson, who held an honorary role as an ‘Entrepreneur in Residence,’ was not commissioned to undertake a review, and that he himself was an unhappy RBS customer.
To some extent the controversy cooled, but public interest re-kindled following a joint report by BBC NewsNight and Buzzfeed in October 2016 which seemed to anticipate the delivery of the report to the FCA.
The High Level summary
On 8 November 2016 the FCA released a statement setting out a high level summary of the main findings and key conclusions, reporting that:
- Notwithstanding the Tomlinson allegations to the contrary, RBS did not set out to artificially engineer the transfer of customers to GRG
- The customers transferred to GRG were exhibiting clear signs of financial difficulty.
- There was no evidence that property purchase by RBS entity West Register had increased financial loss to the customer.
- Inappropriate treatment of SME customers appeared ‘widespread’ and that ‘much communication was poor and in some cases misleading.’
- There was a failure to support businesses ‘consistent with good turnaround practice,’ and an ‘undue focus’ on pricing increases.
It was surely no coincidence that on the day that the summary was released, RBS announced a response to the report which included a complaints process to be overseen by a retired High Court Judge, and the automatic refund of some types of fees paid by SME customers.
However, the RBS response did not close out the controversy, and calls for release of the full report continued.
More detail: a sixty-nine page summary
Almost 12 months later the FCA has released – not the full report – but rather a sixty-nine page ‘interim summary.’ What does it tell us?
Firstly, it highlights the large scale of the review: 207 cases, including 60 in which West Register had some involvement. The reviewers had access to 1.48 million pages of data and more than 270,000 emails, supplemented with interviews of RBS staff and customers.
Critically, the most serious of the Tomlinson allegations were not upheld by the independent review. However, the reviewers found that inappropriate treatment of customers was widespread and systemic – evident in 86% of all cases reviewed, and 92% of the cases involving viable businesses.
The report clearly identified that GRG’s twin objectives – turnaround of businesses in distress and financial contribution to RBS – resulted in inherent conflicts of interest, and that RBS did not have appropriate governance and oversight procedures to balance the interests of RBS and its SME customers.
The specific findings included:
- In practice RBS had failed to place appropriate weight on turnaround options, failed to manage the conflicts of interest inherent in the role of West Register, failed to handle complaints fairly, and was unduly focused on pricing increases.
- RBS’s policies and procedures for problem loans were appropriate, and broadly reflective of normal turnaround practice – but in many aspects the policies were not actually followed.
- GRG notionally used a ‘balanced scorecard’ approach, but in practice the generation of additional income from customers took precedence over any other aspect.
- GRG often sought a reduction in facility levels ‘with insufficient regard’ for the impact on customers. Extensions were typically short-term, and accompanied by fees or higher interest rates.
- Interactions with customers ‘were often insensitive, dismissive and sometimes unduly aggressive.’
- A target of “zero justifiable complaints” actually incentivised a lack of recording and reporting of complaints.
- There had been previous misreporting of the turnaround success rate, in fact only around one in ten cases was returned to mainstream banking.
The summary included a careful explanation of FCA policy around the release of skilled person reports, noting that full disclosure was ‘subject to a wide prohibition in the legislation.’ The summary further explained that an attempt to publish the full report in this case would require ‘heavy redaction’ – a ‘complex and lengthy’ process.
It appears clear that the FCA will not publish the full report unless compelled, and so it seems – no doubt to RBS’ relief – that the issue might finally be heading towards closure.
Regardless of whether the full report is ever published, the message for banks is clear: the public and political expectation is that ‘is it fair?’ is a more important question than ‘is it legal?’
Other posts about the RBS/GRG saga: