Governance and oversight failings in RBS’s distressed debt division led to “widespread inappropriate treatment” of small business customers, according to a report published by the Treasury committee yesterday (20th February).
The report, produced by Promontory on behalf of the Financial Conduct Authority (FCA) and completed in September 2016, sets out the treatment of SMEs in financial difficulty that were placed into RBS’s Global Restructuring Group (GRG) between 2008 and 2013.
Of the several thousand businesses sampled by Promontory, one in six were likely to have suffered “material financial distress” due to poor treatment by GRG, with more having “valid grounds for considering themselves badly treated by RBS and GRG,” stated the report.
The problems were not the result of one-off errors in the unit, but stemmed from “more fundamental failings” to ensure effective oversight and governance of GRG; failing to manage critical conflicts of interest inherent in its activities; and to recognise the risks that it was taking in respect of its treatment of customers.
Reports also suggest that Santander UK chief executive Nathan Bostock, responsible for GRG as head of risk at RBS between 2009 and 2013, has had his role at RBS reappraised by Santander UK chairman Baroness Vadera. Bostock is understood to have the confidence of both the UK and group board of Santander, and no evidence has come to light regarding any role in GRG’s failings.
‘Poorly served’ customers
The production of the FCA/Promontory report began in 2014, after allegations that GRG was more interested in charging clients for services and asset-stripping, rather than corporate rescues. While the report found that defaults were not engineered to transfer business to “simply generate revenue”, customers were “poorly served”.
Promontory stated it “had not seen any evidence” that RBS’s group risk function provided any specific oversight of GRG’s treatment of its customers. However, the bank told Promontory that GRG had received advice from its risk function in formulating policies and risk processes post-credit crisis.
The Treasury committee forced the public release of the report, as the FCA was concerned it would breach the Financial Services and Marketing Act by doing so itself. After much wrangling, and a leak of its information, the FCA handed the document to the committee.
An 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.
“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.”