FCA report on RBS scandal set to recommend scheme for fleeced ‘distressed’ businesses
By Mike Yuille | 19 April 2016
“A compensation scheme will be a quicker and easier remedy than litigation” – Jonathan Hawker, RBS/GRG Business Action Group spokesman
Bosses at the Royal Bank of Scotland face pressure to set up a compensation scheme after its restructuring unit fleeced assets from “distressed” businesses.
Exaro understands that a long-awaited report on the scandal – commissioned by the Financial Conduct Authority (FCA), the City regulator – is set to recommend a compensation scheme. The report was sent to state-controlled RBS last Wednesday for any final comments before it is published.
Troubled RBS, which only last week was in the news over plans to slash hundreds of jobs and cut its branch network, is expected to object strongly to the recommendation.
But Jonathan Hawker, spokesman for a group of more than 400 business owners who claim that RBS wrongly stripped them of their assets, is hopeful that the FCA report will force the bank to pay compensation. “Our members have been waiting for a long time, and we are set up for litigation. If it can be avoided, that is better for all concerned,” he said.
The group’s members owned businesses that borrowed money from RBS, which referred them to its Global Restructuring Group (GRG) – dubbed the “vampire bankers” – when it was sharply reducing its loan book in the wake of the credit crunch and government bail-out in 2008.
The UK government bought a majority stake in RBS in 2008, with its holding rising to 84.4 per cent.
A report in 2013 by Lawrence Tomlinson, then an advisor to the Department for Business, Innovation and Skills, found that RBS “artificially” distressed viable small- and medium-sized enterprises, putting them through an insolvency process that led to “biased outcomes to the detriment of the business owner”.
Hawker told Exaro: “A lot of these people are bankrupt, living with relatives, and in a fairly bad way. So a compensation scheme will be a quicker and easier remedy than litigation.”
The 408 business owners, members of the RBS/GRG Business Action Group, are preparing to sue the bank in the High Court for a total of more than £800 million.
Hawker said that 275 of the group’s members are ready for trial already, with claims ranging from less than £1 million to more than £50 million, and an average of £2 million per case – £550 million in total.
So, he said, RBS would have to commit hundreds of millions of pounds for any compensation scheme over the GRG scandal.
Other groups of business owners are also preparing to sue RBS over its now-defunct GRG, including R G Litigation. Launched only last month, it says that damages claims could run to billions of pounds.
In January 2014, the FCA commissioned Promontory Financial Group, a consultancy company that specialises in regulatory compliance, and Mazars, an accountancy firm, to carry out an “independent review” of RBS’s treatment of business customers in financial difficulty and allegations in the Tomlinson report of poor practice.
The FCA report was due to be published by the end of 2015, but missed the target.
In an update last week, the FCA confirmed that it had received the draft report. It added: “RBS will be given the opportunity to review the report.”
But the FCA is still unable to say when the report will be published.
The timing could be awkward for RBS. The bank is due to hold its annual general meeting on May 4, and may have to prepare hurriedly a public statement on any compensation proposal in the FCA’s final report.
An RBS spokesman would only say: “We will have to wait until the FCA’s findings come out.” He refused to say whether RBS had received the draft.
Tomlinson’s report said that he found “heavy handed, profiteering and abhorrent behaviour” by some banks towards businesses.
But RBS commissioned a law firm to carry out a review, which found no evidence of Tomlinson’s allegation of systematic defrauding of business customers.
RBS recorded in its accounts for 2015 provisions of £2.9 billion for “regulatory and legal actions”, and this did not even include the GRG issue.
After taking initial steps towards privatising RBS, the government delayed plans to sell its stake. However, the government has sold some shares since last August to reduce its holding to 72.9 per cent.