The U.K. Financial Conduct Authority on June 12 published a final report on its investigation into Royal Bank of Scotland’s treatment of small- and medium-sized enterprise customers transferred to its Global Restructuring Group.
This follows the FCA’s update provided in July 2018 on the investigation. In that update, FCA Chief Executive Andrew Bailey said, “Given the serious concerns that were identified in the independent review it was only right that we launched a comprehensive and forensic investigation to see if there was any action that could be taken against senior management or RBS.”
Bailey added that it was “important to recognise” that the business of Global Restructuring Group (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.” The FCA concluded that “its powers to discipline for misconduct do not apply and that an action in relation to senior management for lack of fitness and propriety would not have reasonable prospects of success.”
The FCA said it also found no evidence that RBS artificially distressed and transferred otherwise viable small- and medium-sized enterprise (SME) businesses to GRG to profit from their restructuring or insolvency. Moreover, the FCA said it consulted with independent, external counsel who confirmed that the FCA’s conclusions were correct and reasonable.
Final report details
Following that decision and recognizing the significant public interest in this matter, the FCA committed to publishing a fuller account of its findings. The final report, issued on June 12, sets out in detail why the FCA came to the decision it did.
“This report provides an extended account of the FCA’s investigative work on GRG,” Bailey said in a statement. “Our investigation has found that GRG clearly fell short of the high standards its clients expected but it was largely unregulated and so our powers to take action in such circumstances, even where the mistreatment of customers has been identified and accepted, are very limited.”
“GRG has been highly damaging for those customers impacted and more widely for the reputation of the banking industry,” Bailey added. “Combined with other issues that have impacted SMEs, it is important for all who work in this sector to regain the public’s trust.”
In his remarks, Bailey noted that circumstances have since changed in several important respects. Firstly, he noted, the Senior Managers and Certification Regime now defines the responsibilities and accountability of senior managers in authorized firms in a way that applies to all activities they conduct whether they are regulated activities or not.
Second, the Financial Ombudsman Service (FOS) has been extended in scope in terms of both substantially increasing the coverage to include many more SMEs and an increase in the amount that can be awarded in such cases by the FOS. “These are very important changes,” Bailey said.