Royal Bank of Scotland has apologised and promised to pay back hundreds of millions of pounds to small businesses that were mistreated by its restructuring division.
The bank said that it would pay back complex fees charged by its Global Restructuring Group (GRG) to about 4,000 businesses and set up a new complaints process after the Financial Conduct Authority found a range of serious failings in the division.
It expects the cost of the scheme and paying back the fees and compensation to be about £400 million, which will be accounted for in the fourth quarter
The FCA said that some elements of the bank’s inappropriate treatment of customers should be considered systemic — a charge the bank always denied during years of controversy over GRG.
Companies were told that GRG was a “turnaround” division for troubled businesses. They were unaware that the unit’s primary purpose was to improve the bank’s capital position, which at times put it at odds with its own customers in the fallout from the financial crisis.
In 2013 Lawrence Tomlinson, then a government adviser, published a report accusing GRG of “artificially distressing” businesses.
In a statement before the market opened today Ross McEwan, the bank’s chief executive, said: “I am very sorry that we did not provide the level of service and understanding we should have done. Serious failings have been identified.”
An FCA investigation into GRG continues but the regulator summarised a number of its findings on Tuesday morning. It noted its ability to punish the bank for the failures is limited, since commercial lending is unregulated.
Promontory, the financial consultant which led the GRG investigation on behalf of the regulate, analysed 207 GRG cases and 1.5 million pages of documents and 270,000 emails. Almost two thirds of customers in GRG were found to be potentially viable. The FCA said that most of these experienced some form of inappropriate action by RBS.
However, the regulator said that in a significant majority of cases it was likely that inappropriate actions “did not result in material financial distress to these customers”.
Following allegations that GRG was more focused on extracting money from businesses in financial distress than returning them to health, the FCA said that there was “an undue focus on pricing increases and debt reduction without due consideration to the longer term viability of customers”.
It found failings with how the bank valued customers’ property, which could be a precursor to breaking a loan agreement. RBS relied on internal valuations based upon insufficient or inadequate work, “especially where significant decisions were based on such valuations”.
The bank was also guilty of poor and misleading communication over customer transfers into GRG, taking inappropriate equity stakes in struggling companies and failing to properly handle conflicts of interest.
RBS noted that was not found that the activities of GRG’s property arm, West Register, resulted in customer losses when it purchased their assets.
The bank said that its new GRG complaints scheme would be overseen by Sir William Blackburne, a retired high court judge.
He will be able to order RBS to pay further compensation to customers over direct financial losses related to GRG.
The announcement covers companies with debt facilities of £20 million between 2008 and 2013.