Full report into bank’s ‘inappropriate treatment’ of customers published

The full 362-page report into the actions of a unit of Royal Bank of Scotland (RBS) which details the “inappropriate treatment” of small and medium businesses has now been published; several years after a Yorkshire entrepreneur first exposed issues.

Lawrence Tomlinson in 2013 authored the Tomlinson Report, which first exposed the unfair treatment of businesses in the RBS’s turnaround division. He has this morning called for further action, stating: “RBS is clearly too big to manage and needs breaking into smaller banks.”

The Financial Conduct Authority (FCA) report into the Global Restructuring Group (GRG) at RBS has been released by the Treasury Select Committee after months of deliberation. Last year it had been leaked to the BBC after the FCA refused to publish the report for legal reasons.

Now MPs on the Treasury Committee have voted to publish the 362-page report because there was “overwhelming” public interest in doing so.

The GRG ran from 2005 to 2013 and dealt with 16,000 small and medium sized enterprise companies at its peak. Firms were referred to the group when they missed a loan repayment or suffered profit and sales dips.

Tomlinson, the chairman of LNT Group in Leeds, said: “I am pleased the Treasury Select Committee has brought the debate over publication of the FCA report to a close. RBS has denied and avoided the truth around the activities of GRG for years.

“Now the report is out in the open, RBS need to take responsibility, hold their hands up and do the right thing by their customers.”

The FCA report states: “Our report shows that Dr Tomlinson and Sir Andrew Large were right to identify the complaints they received about GRG as pointing to something much more troubling than simply the understandable disappointment of SME owners who had lost their businesses and blamed a bank – RBS – that had received the extensive public support to help it deal with the impacts of the financial crisis.”

The report found that a third of businesses transferred to GRG were viable to do so. It added: “Our central conclusions are that there was widespread inappropriate treatment of customers by GRG; that this inappropriate treatment was not confined to failures in process; and that in a significant proportion of cases – one in six of the cases we assessed as being potentially viable in our Representative Sample – the treatment appears likely to have caused material financial distress; and in practice yet more customers have valid grounds for considering themselves badly treated by RBS and GRG.

“We find that this was for the most part a direct result of failing in GRG’s governance and oversight arrangements of the priorities GRG pursued.”

It says that GRG put its own commercial interests ahead of the small and medium sized businesses it looked after. The report added: “GRG enjoyed unusual independence of action for a customer-facing unit of a major bank. It saw delivery of its own narrow commercial objectives as paramount: objectives that focused on the income GRG could generate from the charges it levied on distressed customers. In pursing these objectives, GRG failed to take adequate account of the interests of the customers it handled and, indeed, of its own stated objectives to support the turnaround of potentially viable customers.”

The FCA report states that the inappropriate treatment of customers arose from a failure to comply with the bank’s own policy around communicating with customers about transfer.

However, the report found that not all allegations were valid and said that “some events were misinterpreted.” It was also found that RBS did not move customers to GRG for inappropriate reasons.

The FCA did not find that defaults were engineered to transfer businesses to GRG to generate revenue for RBS through fees, increased margins and the acquisition of undervalued assets. No evidence was found either that when GRG acquired assets through its property arm, the price paid was below market price.

The report states: “But, equally important, overall we did find that RBS’s SME customers were poorly served by GRG.”

A RBS spokesperson said: “We are deeply sorry that customers did not receive the experience they should have done while in GRG. The report makes for very difficult reading and some of the language used by our staff in the past was clearly unacceptable.

“Although the most serious allegation – that we deliberately targeted otherwise viable businesses in order to distress and asset-strip them for the bank’s profit –  has been shown to be without foundation, we know that the bank got a lot wrong in how it treated some customers in GRG during the financial crisis

“That is why we put in place two steps – a complaints process overseen by retired High Court Judge, Sir William Blackburne, and an automatic refund of complex fees – to put things right. Any in-scope customer who feels they were treated inappropriately whilst in GRG should make use of the complaints process which the FCA agree is an appropriate response to the findings.

“The culture, structure and way RBS operates today have all changed fundamentally since the period under review and we have made significant changes to deal with the issues of the past, including how we treat customers in financial distress. We have accepted all the relevant recommendations from the report and our focus is now on rebuilding trust and supporting our customers.”

RBS spokesperson added: “The FCA is conducting a second stage of its review, which includes looking at what management knew, or should have known. It would be inappropriate for the bank to comment until the FCA has concluded its investigation.”