Loan workouts: insights from the UK


In the UK, the handling of financially stressed business customers by RBS’ Global Restructuring Group (the loan workout unit) has been highly controversial, and attracted a great deal of media attention.

However, very few disputes between borrower and lender have actually progressed through to final judgement, until the December 2016 decision in Property Alliance Group Ltd (PAG) v The Royal Bank of Scotland plc.

In that case the borrower claimed (amongst other things) that RBS had breached a duty of ‘good faith’ in its conduct of the loan workout.

In the judgement the Court held that there was no such common law duty in the UK, and so there could be no breach – but is there such a duty in Australia?  That’s a difficult question: one academic said the answer was “incoherent”!   Perhaps the answer does not matter, however, because the Australian Code of Banking Practice includes a requirement to “act fairly and reasonably.” *

The decision will be of interest to Australian lenders and their advisers, even more so because the conduct at issue goes to the heart of allegations about ‘constructive default’ that have been raised in the PJC Inquiry into the Impairment of Customer Loans and the forthcoming Senate Select Committee on Lending to Primary Production Customers.


PAG is a property investment and development business – still trading today – that operates primarily in the North West of England.  It borrowed money from RBS, and entered into a series of interest rate derivative products (‘swaps’) prior to 2009.

In the aftermath of the GFC LIBOR fell significantly and by December 2009 sat at 0.60%, and consequently the swaps were ‘out of the money’ by more than GBP9m.  A fall in the value of PAG’s real estate portfolio, on top of the liability for the break cost, resulted in a loan to valuation ratio of more than 90% – and led to a transfer to GRG.  After extensive negotiations in June 2011 the swaps were closed out a cost of GBP8.2m.  Part of that cost was absorbed by RBS, but most of it was funded by an additional loan.

PAG remained under the control of GRG until July 2014 when it refinanced to another lender, shortly after initiating the legal proceedings against RBS.

Three elements to the claims

PAG claimed that the swaps were mis-sold.  Instead of providing a hedge as represented, PAG argued, in fact they left PAG in a worse financial position than otherwise.

PAG’s claim also involved the widely reported allegations that LIBOR had been manipulated by RBS and other LIBOR participants.  PAG said that it was unfair that RBS knew of the manipulation, but PAG did not.

The last claim, and the part most relevant to this discussion, was that by transferring management of PAG into GRG – and by what occurred after that transfer – RBS had breached an implied duty to act in good faith.

What did the RBS workout team actually do?

Arguably, GRG (referred to by some critics as the Grim Reaper Group!) did not quite live up to its apparently fearsome reputation (discussed in more detail here).

GRG did not appoint an Investigative Accountant, or appoint receivers.  It did obtain updated valuations and seek a one-off debt reduction to improve the LVR, but even the  deputy Chairman of the borrower, who lead the negotiations for re-financing, described RBS’s role amongst other things as ‘reasonable’, ‘friendly’, ‘helpful’ and ‘constructive.’

Alleged breach of good faith #1 – the transfer to GRG

PAG claimed that the stated reason for its transfer to GRG control was a pretext: it said that it had little need to restructure because there was ‘no risk of default.’  PAG said that the real reasons for transfer were to stifle anticipated litigation over the swaps mis-selling, and to extract as much revenue from PAG as possible.

The Court held that there was no contractual right to be managed by a particular team, and so it was open to RBS to transfer management control to GRG, and there was ‘substantial documentation’ which showed the transfer clearly as being within RBS policy.  Secondly, the Court found that at the time of the transfer RBS was not really aware of PAG’s mis-selling complaints, and so could not have made a decision to attempt to stifle them.

Finally the Court said that there was simply no evidence that there was an intention to extract as much as possible from PAG.

Alleged breach of good faith #2 – retention in GRG

PAG claimed that it was ‘wrongfully retained’ in GRG, to impose a 100% ‘cash sweep’ in order to maximise value for RBS and (continue to) deprive PAG of funds for litigation.

The Court held that there was simply ‘no evidence’ to support those contentions.  The Court accepted that RBS policy required an updated valuation before the customer could be returned to the frontline team, and information about an associated entity.  RBS’ failure to address these reflected a far more mundane reason: overwork.

Alleged breach of good faith #3 – Demanding an unnecessary and onerous ‘Security Review’ at PAG expense

The Court said that the requirement for a security review was not capricious, it was a condition of the very significant new lending that RBS provided to fund the close out the swaps.

Alleged breach of good faith #4 – Calling for updated valuations of PAG’s portfolio in both 2010 and 2013.

There was a clause in the loan documents that allowed RBS to call for an update of valuations at borrower expense, but it had opted not to exercise this right until 2010, and then again in 2013.  The Court held that the decision to seek valuations was not ‘capricious’ – the bank needed valuations to make an informed assessment as to whether PAG met the criteria for transfer back to the front line, or refinance by another bank.

Alleged breach of good faith #5 – applying improper pressure on the valuers to manipulated the result of the 2013 Valuation

It was true that RBS had raised queries about a draft valuation, which had led to a 1.5% reduction in the valuation, and thereby increased the amount of the payment that PAG had to make to improve the LVR.  However, the valuer had not challenged the legitimacy of the questions, and there was nothing in the valuer’s evidence to suggest that he had been placed under improper pressure.

Alleged breach of good faith #6 – a threat to appoint receivers

It was clear that there had been discussion about the possible appointment of receivers – although it was less clear what the context was.   The Court accepted that an RBS staff member did threaten to appoint receivers, and that ‘the incident amounted to an improper threat,’ but found that single incident by itself did not justify a conclusion ‘that the alleged implied duties were breached.’

Bank wins 3 – nil

PAG was unsuccessful on all counts.  The Court held that RBS had a ‘non-advisory’ role, and that the terms of the contract between PAG and RBS prevented PAG from claiming otherwise, and so the misspelling claim was doomed.

The rejection of the LIBOR claim was comprehensive.  The Court said that linking a transaction to the LIBOR rate did not automatically give rise to any implied representation, but in any event there was no evidence that PAG had relied upon such representations.

Finally, even though there is no general duty of good faith under English law, the behaviour complained of would not have breached any hypothetical breach.

What should Australian Lenders and their advisers take from the decision?

The judgement is unusual in revealing some of the inner workings of a loan workout team – but what it does reveal is fairly mundane.  It highlights that banks are best prepared for challenges to conduct by having policies that set out what is expected, and ensuring that where discretion is exercised there is contemporaneous documentation to explain how it was exercised.


*My thanks to Michael Murray of Murrays Legal for guiding a non-lawyer through the complex issues of good faith!

Update: For more recents developments please see The beginning of the end? The RBS – GRG saga

Bad Reputation? …Reputational issues for lenders and their advisers

[First published on on January 23, 2017]

Brand and reputation may be intangibles in an accounting sense, but the latest development in the long-running investigation into the Royal Bank of Scotland’s Global Restructuring Group shows that there can be real and significant costs arising from their loss.

In November 2016 RBS announced a complaints process for GRG SME customers, as well as the automatic refund of so-called ‘complex fees.’ RBS estimated that the total cost of the scheme administration and likely refunds would be as high as £400m.

Closer to home, claims about ‘artificial’ loan defaults have been raised in Australia via the Parliamentary Joint Inquiry into Impaired Loans, and so the issues and outcomes are important for Australian lenders and their advisers.

The Large Report

In 2013 RBS commissioned an Independent review of lending standards and lending practices.  The 95 page report  (‘the Large Report,’ named for the main author) released in November 2013 mostly dealt with origination issues, but there was some discussion about GRG – RBS’ workout function – which had been raised by a submission from the Department for Business, Innovation and Skills (‘BIS’) written by Lawrence Tomlinson, and others. The report referred to allegations that RBS was working against the best interests of customers, but explained that an inquiry into individual cases was outside its scope, and recommended that RBS conduct a formal forensic inquiry.

Tomlinson, and his report

Lawrence Tomlinson is the owner of the LNT Group, which employs over 2,000 people.  In April 2013 he was appointed as an ‘Entrepreneur in Residence’ for BIS – an honorary position intended to assist BIS in policy formulation.

On the day that the Large Report was released, Tomlinson distributed a paper (available here). Effectively a modified version of the BIS submission, the Tomlinson report was highly critical of GRG, and the insolvency professionals who advised it. The key claim in the report was that RBS was using so-called ‘technical defaults’ to move customers into GRG, so that it could charge much higher fees. If it could not find an existing default, then apparently RBS might ‘engineer’ one, with the assistance of complicit valuers.

Even though secured creditors in the UK can no longer appoint receivers (as explained here) they may still call in loans if there is a default. Tomlinson claimed that defaults were called without consideration of the impact on the customer, and in fact if the customer’s business failed then it might even create an opportunity for a bank subsidiary (West Register) to buy the assets at undervalue.

The Tomlinson report is concise – only 21 pages long – and provides a number of starkly-phrased conclusions, for example describing some bank action as ‘utterly disproportionate at best and manipulative and conspiring at worst,’ and the media certainly responded.

Media and Political response

It seems that it was easy for journalists to find case studies supporting the report’s conclusions, and there was widespread media coverage. A Daily Mail headline ‘A State-owned Bank that kills small firms to feed off their corpses. And still not a hint of shame!,’ was perhaps the most striking example, but it seemed to capture the general mood, and the BBC current affairs show Panorama also ran the story (available here).

There was also an immediate political response leading to an appearance by Tomlinson before a Treasury Select Committee in January 2014. It is clear from that hearing (shown live and still available here) that his report resonated with the members of the committee, with several referring to complaints received from their own constituents.

Queries over Tomlinson’s motivation and method….didn’t seem to matter

It was soon clear that Tomlinson was not asked to conduct a review. Neither the government nor RBS was aware it was being undertaken, as neither had the opportunity to provide any input into his report.

There was some criticism of Tomlinson’s method, and suggestions that he himself was a disgruntled RBS customer, unhappy about fees levied against his business.  Tomlinson admitted that he was an unhappy RBS customer, but said that that the criticisms were valid regardless, and maintained that the focus on RBS was appropriate because it was the subject of the greatest number of complaints.

By and large, the claims about bias and the queries about his methodology were lost in the media and political storm. RBS was left to deal with the issue – whether that was fair, or not.

RBS commissions Clifford Chance

RBS responded within two days, announcing it would instruct panel law firm Clifford Chance to investigate ‘the most serious allegation’ that ‘RBS conducted a “systematic” effort to profit from customers in financial distress.’

The April 2014 Clifford Chance Report available here concluded that there was no evidence of a systematic program to take advantage of RBS customers. Some parts of the report were less helpful however: Clifford Chance said that they were unable to assess whether fees were fair or not because it was ‘difficult to understand’ how fees were calculated ‘in any particular case.’

The Clifford Chance report did not seem to help to close the issue. Some challenged the firm’s independence (for example The Huffington Post7 Things RBS Hoped You Would Not Notice In Its Clifford Chance Report), and it gave Tomlinson the opportunity to point out that the focus on the most extreme allegation left the others unaddressed.

Regulatory Response

The FCA is an independent government authority responsible for protecting and enhancing the integrity of the UK financial system. The FCA issued a statement explaining that the allegations gave rise to concerns about governance and culture, and announced an independent ‘Skilled Person’ review of the allegations by consulting firm Promontory Financial Group and accountants Mazars.

Project ‘Dash for Cash’

The controversy didn’t go away, but it seemed to quieten – until a joint investigation by BBC NewsNight and Buzzfeed in October 2016 which released RBS documents alleged to show that ‘under pressure from the government’ (an interesting sidebar for those who argue that Australia should have a government owned bank: the Tomlinson complaints relate to conduct after the government took a 63% stake in the bank), RBS had:

  • Provided staff with financial incentives (called ‘Project Dash for Cash’!) to force customers into GRG, so that it could extract higher fees.
  • Transferred businesses into GRG for reasons that had nothing to do with financial distress.
  • Not maintained proper Chinese walls between GRG and West Register, and instructed staff to conceal conflicts of interest from customers.
  • ‘Generated a profit’ of more than a billion pounds in a single year through GRG fees and rate increases.

RBS denied the allegations in a statement, and an in-depth interview with the NewsNight reporter the next day. Regardless of RBS denials, the Chairman of the Treasury Select Committee soon released a letter calling for the full release of the Skilled Person Report, which had been delivered In September 2016 – almost two years later than planned.

Two years on…the Skilled Person report is delivered

On 8 November 2016 the FCA released a statement setting out a high level summary of the main findings and key conclusions.

The reviewers concluded that RBS did not set out to artificially engineer the transfer of customers to GRG, and in fact reported that customers transferred to GRG were exhibiting clear signs of financial difficulty. They found no evidence of West Register targeting customer assets for purchase, and could not find any examples of property purchase by West Register that increased financial loss to the customer.

Less happily for RBS however, the FCA said that the inappropriate treatment of SME customers appeared ‘widespread’ and that ‘much communication was poor and in some cases misleading.’ It also identified a failure to support businesses ‘consistent with good turnaround practice,’ and an ‘undue focus’ on pricing increases and debt reduction rather than longer term viability of customers.

RBS response

On the same day that the FCA released the summary of the Skilled Person report, RBS released an LSX announcement outlining a response to the report, described as having been ‘developed with the involvement of the FCA.’

RBS announced a new complaints process to be overseen by a retired High Court Judge, and the automatic refund of ‘complex’ fees paid by SME GRG customers between 2008 and 2013. RBS said that the estimated £400m total cost of the program was approximately 20% of the amount it lost from lending to SME customers in that period.

An analysis by UK solicitor Cat MacLean identifies the fees which are said to attract an automatic refund, a long list including Management fees, Asset Sales fees, Exit fees, Mezzanine fees, Ratchet fees, Risk fees, Late Information fees, Property Participation fees and Equity Participation Agreement fees.

Is this the end?

RBS must hope that their response to the Skilled Person report will close the issue, but that seems unlikely:

  • There are still calls and campaigns for the release of the full report.
  • The £400m refund and compensation scheme will not resolve all claims (borrowers with debt facilities or turnover higher than £20m are excluded).
  • The outcomes do not appear to be binding on borrowers, so borrowers unhappy with the decisions may still pursue the normal avenues.

The total cost is already higher than £400m – UK-based claim adviser Seneca Banking Consultants claims to have recovered £100m just for its own clients – and there are other claims in the wings, most notably the RBS-GRG Action Group claims to be organising ‘group litigation’ involving more than 400 borrowers with claims reported as totalling more than £1b.

So, we should give a damn….

Three years after complaints were raised in the Tomlinson report, the worst of the allegations appear to have been discredited. But that conclusion has only been reached after considerable damage to the RBS brand and reputation, and now, very real and significant financial cost.

‘Do our loan documents allow this?’ is still a very important question for workout bankers, but it is not the only question to be asked. The RBS experience shows very clearly that lenders and their advisers are wise to address other questions around transparency and fairness before determining a final course of action – even more so given that there is no lessening in calls for the independent review of lender conduct.

Update: For more recent developments please see The beginning of the end? The RBS – GRG saga

The Tomlinson Report and its Aftermath

[Originally published in the March 2014 issue of the Australian Insolvency Journal, and reproduced here with permission]

In November 2013 a UK government adviser issued what is now referred to as The Tomlinson report. It was highly critical of the workout function of the Royal Bank of Scotland (RBS) and the insolvency professionals who advise it.

The report was the subject of a great deal of media attention in the UK, and has been reported, albeit less intensively, in the US, Asia, and Australia. In the UK, the Financial Conduct Authority has initiated its own review, and in Australia the report has been linked with the upcoming Murray inquiry.

Later media reporting raises questions about whether Lawrence Tomlinson himself has a conflict of interest in criticising RBS, and arguably the report itself is an aggregation of complaints rather than an objective review. In one sense however, such complaints are irrelevant – the response to the report highlights the very challenging reputational issues faced by banks and the insolvency profession, whether in the UK or Australia.

Background to Tomlinson

An engineer by training, Tomlinson is the owner and chairman of the LNT Group, which employs over 2,000 people in five separate businesses, with significant reported net wealth.[i] Tomlinson was appointed as an Entrepreneur in Residence for the Department for Business, Innovation and Skills (BIS) in April 2013. With hindsight it is notable that on appointment he identified his key focus as addressing ‘some of the key concerns around access to finance and improving bank lending to business’, and advised his intention to ‘share the views and experiences of my peers with Ministers and officials’[ii].

Looking back it is clear that by issuing his report, Tomlinson has done exactly what he said he would do. But in another sense his report appears to have been a surprise to the Government, RBS and the insolvency profession, none of whom were consulted or invited to provide input or comment.

Independent Lending Review and Large Report

In July 2013 RBS appointed former Deputy Governor of the Bank of England Sir Andrew Large and the management consultancy Oliver Wyman to undertake an independent review of lending standards and practices for small business lending.[iii]

The objective of the Independent Lending Review (ILR ) was to: ‘identify steps that RBS/ NatWest can take to enhance its support to SMEs and the economic recovery whilst maintaining safe and sound lending practices’, and ‘promote a common understanding of the way in which the bank makes its judgements and decisions on SME lending’.

The ILR was a wide-ranging review of all aspects of SM e business lending, drawing on a very wide range of internal data, customer surveys and comprehensive stakeholder consultation.

Relatively late in the ILR process BIS made a submission prepared by Lawrence Tomlinson that raised concerns about the work undertaken by the Global Restructuring Group (GRG), the RBS workout function.

On 25 November 2013 the ILR issued its report (the Large report). While the majority of the 95-page report deals with origination and ‘front-end’ issues, there is some discussion of the GRG function.

The report observed that: ‘GRG has been successful in executing its mandate’, noting that ‘over half of all customers under the relationship management of GRG are returned to normal relationship management … around a third refinance with another bank or repay through asset disposals and only a minority (~10 percent) enter insolvency proceedings.’

The Large report referenced ‘more extreme accusations’ made by ‘a small minority of RBS customers’ primarily based on the Tomlinson material, which it summarised as a perceived conflict of interest such that RBS ‘may even be profiting by working against the best interests of financially distressed customers’.

The report also referred to the role of West Register, an RBS subsidiary that acquired properties from RBS customers for later sale, with the end result that any uplift in value would accrue to RBS rather than the former owners.

The report explained that an inquiry into individual cases was outside its scope and recommended that RBS ‘address the concerns that have been raised by some customers and external stakeholders about its treatment of SMEs in financial distress and minimise the perceived conflict of interest within GRG’ through a formal forensic inquiry.

The Tomlinson Report

Presumably it was no coincidence that Tomlinson issued a 21-page redacted version of the material that he had provided to the ILR (now widely referred to as the Tomlinson report) on the same day that the ILR released the Large report.[iv]

The Tomlinson report sets out conclusions drawn by Tomlinson following his own investigations into complaints he had received, apparently without input from RBS. The absence of RBS input does not of itself render his conclusions invalid. But critics of Tomlinson would point out that the assessment was conducted based on ‘one side of the story’ and risks a lack of context.

The redacted report provides a small number of examples, but there is no reference to data or data analysis. Again though, we should note that of itself this omission does not automatically render the conclusions invalid. Tomlinson later clarified that the full report provided 23 examples drawn from around 200 complaints. [v]

The report does include a number of very quotable observations and it is no surprise that media attention focused very heavily on the Tomlinson report in preference to the Large report:

The trigger point [for transfer to GRG] … is sometimes so insignificant, given the otherwise positive performance of the business, that the reaction by the bank can only be considered as utterly disproportionate at best and manipulative and conspiring at worst.

The bank artificially distresses an otherwise viable business and through their actions puts them on a journey towards administration, receivership and liquidation … it became very clear, very quickly that this process is systematic and institutional.

It is undeniable that some of the banks, RBS in particular, are harming their customers through their decisions and causing their financial downfall.

Tomlinson also raises criticisms about the scope and role of the Investigative Accountant (IA):

The potential for conflicts of interest in insolvency is also rife … there are many occasions in which the IBR who works with the business whilst in business support is also the business administrator.

There is also often a requirement for an Independent Business Review (IBR) … at great cost to the business, who often do not even get to see the report.

At best, there is little accountability for the IBR and resulting actions, denying the business of the ability to respond to parts of the report or challenge it (sic) accuracy.

Tomlinson concludes by calling for bank break-ups: ‘The ideal scenario would be the creation of six banks out of RBS and Lloyds … to create fully functioning challenger retail and commercial banks.’

Media Response

One of the first reports was an article in The Independent on 25 November 2013. It focused on the high-profile head of GRG, Derek Sach, known for ‘treading on toes and slaying sacred cows’ by calling for tenders for receiverships and blocking IAs from taking a later role as administrator or receiver of the same company. This second point is noteworthy because it contradicts Tomlinson’s first complaint about IAs.

On the same day, the BBC summarised the two reports and reported that RBS had instructed the law firm Clifford Chance to investigate the allegations. The Daily Mail provided a spectacular headline ‘A State-owned Bank that kills small firms to feed off their corpses. and still not a hint of shame!’ above an article that referred to ‘new-wave grave robbery’.

The Independent returned to the story the following day with two articles. The first called for a break up of RBS, describing it as ‘a vertically integrated, systematically organised asset stripping machine’. The second focused on the information in RBS’s 2012 Annual report which showed that only six percent of GRG customers were returned to normal management.[vi]

The following day, The Guardian published a case study of an aged care home business which had reportedly ‘never missed a mortgage payment’ and was in credit across all bank accounts when it made a request to change one loan to an interest-only basis. According to the story, this led to a transfer to GRG, a visit from a pink-Porsche driving RBS staffer who ‘said she knew nothing about care homes’ so would have to engage an IA.

The Tomlinson report also attracted international interest, and was reported in the New York Times, The Irish Times and The Australian. The Australian reported that ‘similar allegations have been aired in Australia by customers of the major banks’, and quoted Senator John Williams as saying that he had ‘no doubt’ that issues similar to those in the Tomlinson report would be brought before the Murray inquiry.[vii]

The British weekly The Spectator covered the issue with a case study, ‘How our company was nearly bullied to death by a desperate RBS’, describing how RBS had threatened to call a default because a borrower had commenced ‘negotiating with a creditor with a view to rescheduling indebtedness.’

In fact those negotiations were with RBS itself; the borrower had asked RBS to consider changing a repayment schedule. Notably, the article described the GRG bankers as ‘the warrior trolls of Orwellian “corporate recovery”’ and the ‘sharp-suited’ IA team as charging ‘£600 per valueless hour as they tap us for the knowledge that will reappear, beautifully presented, in a report to RBS that we will never be allowed to see in full’.

Tomlinson’s Conflict of Interest?

On 3 December 2013, The Financial Times raised concerns about selective editing in the Tomlinson report, explaining that similar criticism of Lloyds appeared in an early draft, but had been removed in the final version[viii]. The paper said that Tomlinson’s ‘willingness to make such a fundamental change to his report at a late stage, and to direct his criticisms at a single named bank, has caused some to question his methods and motivation.’

The Financial Times also referred to an unnamed government minister that Tomlinson was ‘gunning for RBS from the start’, and reported that he had made a formal complaint about the behaviour of two executives at the bank and expressed ‘frustration’ at the lender’s approach to a refinancing a four-bank £100m facility to his ln T Group which cost £1.4 million in fees to arrange.

Tomlinson did not deny the reports of his personal dissatisfaction with RBS but pointed out, rightly, that any dissatisfaction with RBS did not mean that the complaints were unfounded.

Uncertainty over the RBS Repatriation Rate

The repatriation rate (the percentage of workout customers that return to normal management) is a key performance indicator for a turnaround function. By contrast, a recovery team is more likely to focus on a loss rate.

The Tomlinson report referred to an ex- RBS whistleblower unable to recall any examples of repatriation. The Large report referred to repatriation of ‘over half’, but unhelpfully provided no more data than Tomlinson. RBS’ own 2012 annual report, scrutinised by auditors, refers to a six percent repatriation rate.

The numbers are different, but they will not necessarily reconcile. Firstly, the annual report speaks to repatriations achieved in a 12 month period, the whistleblower is presumably intending to describe a broader period, and we simply don’t know which time period the Large report describes. Secondly, the annual report appears (and it’s not as clear as it could be) to measure repatriation of incorporated borrowers, whereas Large may be referring to both incorporated and unincorporated borrowers.

However, with all the uncertainty about the data noted, an outsider can reasonably conclude that:

  1. The discrepancy between six percent (annual report) and ‘over half’ (Large report) is so great that it is difficult to believe that both are correct.
  2. A repatriation rate of six percent must be regarded as disappointing for a team working towards a turnaround objective.

RBS’ Response

RBS provided an initial response on 25 November 2013 via an open letter from the CEO[ix]. It was careful to show that it accepted the Large report, describing it as ‘a thorough and balanced analysis of the business’ which at the same time provided ‘a tough read for the bank’.

However, they also used their response to provide some context for their actions, explaining the impact of regulatory pressure via regulators who ‘want the bank to remove problem loans more quickly’.

Finally, RBS announced it would engage a newly – appointed panel law firm Clifford Chance to undertake an independent inquiry, and undertook to address any shortcomings identified and share all findings with the Financial Conduct Authority (FCA ).

A statement on 27 November explained that Clifford Chance would focus on ‘the most serious allegation’ that ‘RBS conducted a “systematic” effort to profit’ from customers in financial distress[x]. This second announcement appears to quite significantly narrow the focus of the review: Clifford Chance might find widespread poor treatment of customers yet reasonably conclude that it had not been systematic.

Political Response

The Tomlinson report generated immediate political interest. The BBC analysis quoted Chancellor George Osborne describing the reports as ‘shocking,’ Andrew Tyrie, chairman of the Treasury Committee, as saying ‘The reports … make clear that there is a fundamental cultural problem with RBS’s lending to and treatment of SMEs’, and Business Secretary Vince Cable as saying ‘we are pretty confident that the evidence is solid’.

A Treasury Select Committee questioned the Bank of England governor Mark Carney, who told them he thought the allegations were ‘both deeply troubling and extremely serious’.

Both Sir Andrew Large and Lawrence Tomlinson were invited to appear before the Treasury Select Committee in January 2014. Introductory remarks by the chairman that ‘We have all had huge problems with RBS in our constituencies one way or another’ were typical of the members’ views, and there was very little challenge to Tomlinson’s evidence or independence.[xi]

Responses discussed by the Committee included an expansion of the role of the Financial Ombudsman Service (FOS). FOS is an independent statutory body available to private individuals and micro-enterprises (businesses with an annual turnover of less than two million Euros and fewer than 10 employees) with complaints against financial businesses. FOS can order compensation of up to £150,000.

Regulatory Response

The FCA is an independent government authority with a strategic objective ‘to ensure that the relevant markets function well’. Its operational objectives are ‘to secure an appropriate degree of protection for consumers, to protect and enhance the integrity of the UK financial system [and] to promote effective competition in the interests of consumers.’

On 29 November 2013 the FCA issued a statement in response to the Tomlinson and Large reports.[xii] The FCA explained that while commercial lending was not directly within its purview, the nature of the allegations in the reports gave rise to concerns about governance and culture, which are. Thus they announced the statutory appointment of ‘an independent skilled person’ to review the allegations and report to the FCA.

The FCA would also write to other banks seeking confirmation that they ‘do not engage in any of the poor practices alleged in the reports’.

On 17 January 2014 the FCA announced that consulting firm Promontory Financial Group and accountants Mazars had been engaged to review a sample of GRG customers including some of the Tomlinson complainants. The review would specifically assess whether any poor practices identified were widespread and systematic, and if so make recommendations to address any shortcomings. The FCA advised that it expected to publish the outcomes of the review in the third quarter of 2014.


The nature of the allegations and their headline-friendly wording has attracted the attention of a public that was clearly prepared to believe the worst of bankers and insolvency practitioners, highlighting the reputational issues that both face.

Critics have raised questions over Tomlinson’s independence as well as the strength of the evidence and analysis to support his allegations. In a sense these criticisms are almost irrelevant, because they emerged only after the FCA had already initiated a review. It is also noteworthy that the original allegations received heavy media coverage, whereas the questions over Tomlinson’s independence have been mostly confined to the specialist finance media.

Once the crisis broke RBS handled it in text-book fashion. If we ask ‘what could they have done differently?’ the challenge is clear because RBS appear to have been excluded from Tomlinson’s process altogether. Two points stand out:

  1. If RBS had engaged with Tomlinson immediately after his on-appointment comments they may have had the chance to inform and influence him.
  2. RBS has not been able to present a clear and understandable picture of the success of their turnaround function i.e. their repatriation rate.

RBS will incur costs in running the Clifford Chance investigation and responding to the FCA inquiry. However, those costs will not be material. In my view, the more significant impact will be on senior management in dealing with the inquiries and their consequences.

To this observer at least it seems unlikely that the review will result in the bank break-up that Tomlinson calls for. But an expansion of the role of the Financial Ombudsman might be proposed even in the absence of any evidence of systemic wrongdoing.

Update: For more recent developments please see The beginning of the end? The RBS – GRG saga

[i] Biographies at and

[ii] Department for Business, Innovation & Skills media release hired-entrepreneurs-in-residence-to-advise-government

[iii] The background to and the report itself is available at

[iv] available at

[v] Tomlinson’s evidence to the Select committee on 29 January 2014 is available as a transcript html/5629 , or via Parliament TV: ; evidence from Sir Andrew Large on 22 January 2014 is available at html/5605

[vi] RBS Annual report 2012, page 174

[vii] More correctly this is the Financial System Inquiry, headed by David Murray AO, the former CEO of the Commonwealth Bank, announced by the Government on 20 November 2013,

[viii] ‘Criticism of Lloyds removed from Tomlinson report’ by George Parker and Andrew Bounds



[xi] See footnote 5