As there is still no date for the release of the s.166 report in to RBS Group’s Global Restructuring Group (“GRG”) division our Banking and Finance team provide 10 questions every business owner affected by the bank’s actions should be addressing to the FCA.
Question: Has the FCA agreed that it will take action against directors of RBS with responsibility for GRG and any relationship managers in this division identified as having acted inappropriately?
Reason: The FCA has been heavily criticised over the miniscule number of people prosecuted by the FCA over the Bank collapse, LIBOR and Foreign Exchange and PPI. The FCA has three years in which to start a regulatory case against someone. The clock started on 25 November 2013 with the publication of the Tomlinson Report. That means, if the FCA wishes to take action against any Director, senior manager or relationship manager at RBS because of their actions involving GRG this must be started on or before 25 November 2016. The clock is ticking.
2. Question: Has the FCA considered whether the use of GRG by RBS stifled competition in banking? Will the FCA consider this if it has not already done so?
Reason: Being put into GRG usually meant that a business could not bank anywhere else easily (if at all) and would ultimately pay much higher margins because of the “distressed borrower” stigma and credit unease associated with a company in GRG. That stifled the ability of businesses to go elsewhere – that therefore stifled competition so that only RBS would get the business and the interest payments. We want the FCA to deal with this.
- Alleged Fraud
Question: If the s. 166 report into GRG proves fraud on behalf of any executive and/or RBS employee, will the FCA pass the files to the Serious Fraud Office?
Reason: Panorama and our own investigations have shown that some of the activities by RBS appear to have been undertaken for reasons that have no apparent rationale or sensible commercial explanation. Many RBS customers have alleged there are untoward reasons behind these activities and decisions made in relation to their accounts. If the FCA finds evidence of fraud, we expect them to pass this to the SFO. However as seen with HBOS and RBS collapsing, the FCA will not take the actions of a responsible and proactive regulator.
Questions: Will the FCA request that the Royal Institute for Chartered Surveyors commence their own investigation into the conduct of its membership if evidence of collusion between the banks and RICS certified valuers is brought to light by the s. 166 report?
Reasons: Berg has seen evidence of valuations that appear to be wildly different to values actually achieved at auction or on sale. Allegations have been made that the reason for low-balling valuations was to ensure Property Participation Fee Agreements would result in a substantially higher fee payment than if an allegedly true valuation were carried out. There has also been allegations made that RBS artificially defaulted lending by acquiring an “independent” valuation from its panel, when the allegedly “true” valuations were much higher than those given to RBS. Evidence is needed, and a review by the FCA and RICS is essential.
- The Delay
Question: We have waited for over two years for this report. Will the FCA explain why it has taken this long?
Reason: The FCA instructed two firms to carry out a s. 166 report into GRG. The report has therefore been in production for the last 27 months. We want the FCA to explain, in detail, why the report has taken that long. This will be doubly so in the event that the FCA and Government decide not to release the whole report, as has been alleged recently.
- The cost
Question: The report has taken 27 months so far. How much has the FCA spent on this report and how much of that is recoverable from RBS?
Reason: The HBOS report took much longer, but only because the FSA (as it then was) wanted to await the completion of the regulatory investigation into a HBOS executive. That report cost £7 million. We have a right to know how much the report cost and how much of that cost is recoverable from RBS.
Question: The FCA has been putting out considerable material explaining how much bonus structures can influence the treatment of customers. Has the FCA considered the GRG issues in light of the bonuses GRG staff were offered? Has the FCA considered whether bonuses urged employees to treat customers in a way that is not compliant with their fundamental regulatory PRIN duties (the cornerstone of which is Principle 6 – Treating Customers fairly)?
Reason: Bonuses play a crucial role in business. They provide targets and set out what is expected of an employee. Pre 2008 bonuses were offered in substantial ways requiring greater profits to be made. The untrammelled pursuit of profit resulted in substantial mis-selling and “casino banking”. If GRG employees were offered targets and bonuses that ultimately resulted in customers being mistreated in order to achieve targets and bonuses we want the FCA to be open and transparent about this.
- Regime Change
Question: If the s. 166 report is as bad as we expect it to be, will the FCA be demanding (forcing?) senior directors and executives to leave RBS and/or the finance sector?
Reason: As noted above, when HBOS collapsed only one banker was banned from working in the financial sector. When RBS collapsed, no banker or executive was banned. We have seen first-hand how savagely some GRG employees treated customers. All of the activities came in a top-down directive – so we expect those at the top encouraging this behaviour to be brought to task.
Question: Will the FCA be encouraging whistle-blowers so that any criminality not identified by the s. 166 report may still result in regulatory or criminal prosecutions?
Reason: Berg is aware that the FCA has done much in terms of making it easier for whistle-blowers in the industry to talk. However, talking about criminality such as is alleged with GRG would likely result in a banker becoming unemployable if they do talk. We need to know what the FCA proposes to do to provide safety for any RBS employee that wishes to provide evidence of wrong-doing at the bank.
Question: The GRG issue came to light at the same time as the Lloyds issue. Is the FCA going to instruct a s. 166 report into Lloyds’ BSU division, which did similar/the same to its customers.
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The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by berg or any of its partners or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.