RBS to refund £400m to small business customers

Tom Wilson
8 November 2016
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Royal Bank of Scotland (RBS) has agreed to refund fees totalling £400 million to small business customers that were squeezed by the bank’s credit re-structuring division in the wake of the financial crisis.

Some 12,000 small and medium-sized businesses in the UK and Ireland will be automatically reimbursed for fees levied by the bank between 2008 and 2013, when RBS allegedly forced small companies to agree to new terms on their outstanding debts that were not in the borrowers’ best interests.

 

The number of businesses that were forced to deal with GRG, RBS’s debt restructuring department, surged by 400% in 2008 as the bank’s losses from SME lending surpassed £2 billion.

RBS also faced allegations that in some cases it had artificially forced some of its SME clients into bankruptcy in order to buy up their assets at knock-down prices, though the Financial Conduct Authority’s (FCA’s) investigation revealed “no evidence” of this practice.

However, the regulator did say that some of RBS’ treatment of customers should have been considered a “systematic” failure, as RBS failed to manage conflicts of interest between different parts of its business.

 

RBS also did not follow its own policies for business customers, and “the standard of much communication was poor and in some cases misleading,” according to the FCA.

At the behest of the regulator, the state-owned bank has also established a new complaints process for business banking customers that will be overseen by Sir William Blackburne, a retired high court judge.

Today’s redress agreement follows a “complex and lengthy review” by the FCA, which examined 207 cases from a six-year period, burrowing through 323 gigabytes of data and 1.5 million scanned documents.

“Mistakes were made”

Ross McEwan, RBS’s chief executive, says the bank has “acknowledged for some time that mistakes were made,” saying he was sorry that RBS “did not provide the level of service that we should have done.”

Mr McEwan insisted however, that RBS has changed its ways, adding: “The culture, structure and way RBS operates today is fundamentally different from the period under review. We have made significant changes to deal with the issues of the past, so that the bank can better support SME customers in financial difficulty whilst also protecting the bank’s capital.”

Andrew Tyrie MP, of the Treasury Select Committee (TSC), says: “The announcement is welcome. It is also not before time. For over three years, the Committee has been pressing for fair treatment, for the many businesses, which have been at the wrong end of GRG’s bad practices. Redress now looks a little closer.”

The agreement between RBS and the FCA was announced this morning, and despite the £400 million charge, RBS shares ended the day at 1p (0.54%) higher than this morning, closing at 187p.

Analysts from Shore Capital say the £400 million charge was “not as big as feared”, though the FCA has announced it is investigating why market-sensitive information about the settlement appeared to have been leaked last night before it was disclosed this morning.

Mr Tyrie adds: “The leak of market sensitive information is deeply concerning. The FCA confirmed today that they will be conducting a leak inquiry; the TSC will examine its conclusions carefully.”

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