Did RBS abuse its turnaround process? We deserve to know
During my tenure as secretary of state for business, innovation and skills, one of my major preoccupations was the banks’ treatment of SME customers.
I appointed Lawrence Tomlinson as one of the department’s two “entrepreneurs in residence”, based on his record as a successful, innovative businessman. He wrote a report on the activities of Royal Bank of Scotland’s turnaround division, the Global Restructuring Group (GRG), based on his and others’ experiences.
The findings concerned me greatly. The report suggested that RBS had pushed small and medium-sized businesses into default from around 2008 onwards. The SMEs were then forced into GRG and charged high fees for the privilege, while their assets were taken from them at a discounted price.
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Good businesses were, allegedly, destroyed as RBS looked to rebuild its own balance sheet. The bank itself asked Sir Andrew Large to carry out an independent investigation, which was very critical.
I referred the Tomlinson report to the Financial Conduct Authority (FCA). That was over four years ago.
The FCA did commission an independent report following up Tomlinson’s assertions, but the full findings have never been published.
What we do know from two summaries, published late last year, is that 92 per cent of the thousands of potentially viable businesses that ended up in GRG experienced “some inappropriate actions” in the handling of their case.
But, using parliamentary privilege in a debate on the floor of the House of Commons last week, I confirmed BBC reports that the unpublished document says: “management knew or should have known that this was an intended and co-ordinated strategy and that the mistreatment of business customers was a result of that”.
This extraordinary allegation was omitted from the summary reports. Andrew Green, the QC appointed by the Treasury Select Committee to make sure the summaries were a fair reflection of the unpublished account, has highlighted its exclusion as significant.
The FCA’s rationale for not making the full findings public is that individual members of RBS management had not been given the opportunity to challenge any criticisms related to them – a lengthy process known in the trade as Maxwellisation. This process would, the FCA argued, lead to further “delay”.
But the independent report was completed in 2016. Maxwellisation could, and should, have been commissioned and completed by now.
Moreover, the Promontory Financial Group, which produced the report, believes the work should be published in full, albeit redactions would probably be necessary.
I have written to FCA chief Andrew Bailey this week, telling him that there is no excuse for further delay. We already know the nature of the finding that has been excluded – now the FCA must reveal the evidence behind that finding, explain exactly what is being alleged, and what it means for the GRG debacle as a whole.
What struck me about that parliamentary debate was how so many MPs from different political perspectives were in cross-party agreement that the treatment of SMEs by GRG had been damaging to both the economy and individual business owners. Many entrepreneurs lost not only their businesses, but their savings, property, good health, and, in the saddest cases, their families.
With so many thousands affected, nearly every MP has met a constituent who was ruined, and we have all been moved by what we have been told.
Those victims deserve to know the truth about what transpired and should not be left to wait any longer.
Publishing the full report would also help us assess whether the £400m that RBS has set aside for compensation is adequate. Even without additional evidence, this looks insufficient; the suspicion here is the pressure on RBS will be so great that far more will have to be poured into this pot over the coming months and years.
Perhaps most important, though, is the simple factor of time. Last year was the tenth anniversary of the credit crunch, and 2018 marks a decade since the financial crisis started.
It is unfortunate that we are still talking about the legacy issues of RBS so many years later, and that they continue to weigh down heavily on the bank’s share price. RBS remains majority-owned by the taxpayer following its bailout in 2008, but the state will not be able to sell those shares at break-even point, or better, until the bank has resolved this and other legacy disputes.
And, at this rate, we could be looking at another decade until selling the shareholding makes any economic sense.
Let’s not waste any more time. The FCA should publish this report in full for the good of GRG’s victims and, ultimately, RBS itself.
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