Royal Bank Of Scotland (RBS) is to escape punishment for the way it mistreated small businesses because Britain’s financial regulator has admitted its powers are ‘very limited.’
In a statement, the Financial Conduct Authority (FCA) said its options for taking action were limited because commercial lending is largely unregulated in the UK.
Likely to fail
It added that action against former executives was likely to fail because it found no evidence that senior management specifically ‘sought to treat customers unfairly.’
The FCA announcement came after an independent review found the Global Restructuring Group within RBS ‘fell well short’ in its treatment of the small business customers it was supposed to be helping back to financial health.
The review found that the unit had systematically mistreated customers, saying: “Many aspects of GRG’s culture, governance and practices were deficient and that in some areas the inappropriate treatment of customers was widespread and systematic”.
An FCA spokesman said: “These failures are significant and might ordinarily trigger a disciplinary action if they occurred in a regulated business.”
He further commented that the regulator had taken independent, external legal advice which found that GRG’s activities were ‘not within its remit.’
Chief executive Andrew Bailey said: “It is important to recognise that the business of GRG was largely unregulated and the FCA’s powers to take action in such circumstances, even where the mistreatment of customers has been identified and accepted, are very limited.
Taking action was therefore always going to be difficult and challenging. “I appreciate that many GRG customers will be frustrated by this decision, but we have explored all the options available to us before arriving at this conclusion.
“The fact that we can’t take action in no way condones the behaviour of RBS. We expect high standards from the firms we regulate and RBS fell well short in its treatment of GRG customers.
“We feel strongly that those companies that have suffered loss as a result of how they were treated whilst in GRG must be appropriately compensated.”
It is understood that RBS has offered £125 million in compensation to firms affected so far.
The announcement that the regulator could not intervene brought immediate calls from Nicky Morgan, chair of the Treasury Select Committee, other MPs and industry groups for changes to commercial lending regulations.
Mrs Morgan said: “The Government should stand ready to introduce any legislation required when it sees the outcome of current reports on redress and should also urgently consider what additional powers the FCA requires to act in cases such as GRG.”
Accountable nor untouchable
Kevin Hollinrake, co-chair of the All-Party Parliamentary Group on Fair Business Banking, said: “As lawmakers we have an obligation to the public to ensure that those who are responsible are accountable and not untouchable, as indeed is the case now where the individuals responsible are protected by the regulatory inadequacy of our current system.”
The Federation for Small Business said: “There’s nothing in the current legislative framework to stop another GRG-type scenario. As long as commercial lending remains unregulated, small firms will be vulnerable”.
RBS chairman, Howard Davies, welcomed the FCA’s decision, saying: “We await the publication of the FCA’s full account and will reflect carefully on its findings to learn any further lessons from what was a hugely challenging time for the bank, its customers and the wider economy.
“The board continues to focus on putting things right for customers through our complaints process and ensuring that past mistakes cannot be repeated”