Kevin Hollinrake is MP for Thirsk and Malton, and is co-Chair of the APPG for Fair Business Banking.
Over the last ten years, we have witnessed the most disgraceful, shameful episode in British banking’s 500-year history. Despite persistent and strenuous denials, RBS broke the rules to such an extent that it has been found guilty of the systematic mistreatment of their own business customers, which led to the destruction of thousands of viable businesses, jobs and, in some cases, lives.
Not only did it deny wrongdoing, but it used all the money, influence and power at its disposal to shut down and discredit (even literally) anyone who tried to draw attention to their malpractice. Even more shockingly, I can come to no other conclusion than that they are being protected by the regulator, the Financial Conduct Authority (FCA).
Lawrence Tomlinson, a Yorkshire businessman and formerly Entrepreneur in Residence at the Department for Business, Innovation and Skills, was the first to discover and report on the abuses of thousands of SMEs at RBS and its notorious ‘restructuring’ division, GRG, in 2013. Incredibly, its response to his report was to withdraw banking facilities from Tomlinson’s extensive business empire (he was an RBS customer), putting thousands of jobs at risk and even pressured its Coutts subsidiary to withdraw the mortgage on his home.
Two months later, the FCA commissioned a full ‘Skilled Persons’ report. The terms of the report are set out in the Final Requirement Notice. Phase One was to address the allegations in the Tomlinson report and, if the actions of the bank found “widespread and/or systematic”, Phase Two would then proceed, which would “consider the root causes” and establish whether “the cause of such treatment were known about, authorised by and/or sanctioned by management within RBS Group”.
Promontory, a US compliance firm, was named as the Skilled Person, and the report was completed and handed to the FCA in September 2016. It was damning. It upheld the vast majority of Tomlinson’s findings and went much further in a number of areas, describing mistreatment as “systematic”, which caused “material financial distress” and that RBS “failed to manage conflicts of interest”, thereby creating opportunities for its subsidiary West Register which then “purchased property primarily out of administration”. GRG was a profit centre which in 2011 alone recorded a “Contribution” of £1.1 billion. RBS was also criticised by the report’s authors for offering “narrow compliance” and being “unduly defensive” during the inquiry. Crucially, the report laid the blame directly at the door of those in charge: “GRG management was aware” of the abuses, which happened as a direct result of the “priorities GRG pursued”.
The Final Requirement Notice stipulated that report should be drafted “in such a way that the contents can be published”. Indeed, as the FCA acknowledges in its Final Summary Review of the report “Promontory would prefer to see their report as a whole published”. Despite this, the FCA decided not to publish the full report, at least to some extent (according to leaked minutes of a board meeting) because they had concerns that they might be taken to court by RBS.
Instead, twelve months later, the FCA published a summary of the report, inexplicably reversing the principal emphasis so that “widespread inappropriate treatment” became “isolated examples of poor practice”. Had the full report not been leaked and then published by the Treasury Select Committee, the full extent of the malpractice would never have been revealed.
Although the criteria for Phase Two was clearly met, the FCA then infringed the terms of its own Final Requirement Notice by disinstructing Promontory and undertaking the next stage itself.
It released a statement on its Phase Two findings in July, concluding that its “powers to discipline for misconduct do not apply”. It could find “no evidence of dishonesty, lack of integrity” any “absence of competence or capability”, anyone acting “recklessly or with a dodgy “ethical compass” and did not “make findings about misconduct” amongst the senior management team. This seems to completely contradict the Promontory findings and you have to ask yourself, how then did the UK’s biggest ever banking scandal take place?
The assertion in the statement that the increase in business transfers to GRG “was a consequence of the financial crisis rather than any strategy on the part of GRG” ignores evidence that senior managers actively sought opportunities to move good businesses from mainstream divisions into GRG. It also disregards RBS’ actions that contributed to financial distress prior to transfer, such as withdrawal of overdrafts, down-valuation of assets and mis-selling of IRHPs, all conveniently outside the scope of the investigation.
The FCA must publish a full account of its findings and the evidence that underpins it and of the same quality and depth as provided by Promontory. The public, press and parliamentarians can then determine whether the FCA could and should have taken action against senior management, whether we need to provide the regulator with more powers and so that the untouchable senior managers at RBS/GRG, many who remain working in the banking sector, are held to account. But also, perhaps, by a consideration of their fitness and propriety to work in the sector by their current or future employers.
Our regulatory system allows RBS to operate an internal compensation scheme for its own offences, for which is it both judge and jury. It has returned only £6.7 million in the way of compensation for those who have suffered, despite profiting to the tune of billions of pounds from its misconduct. The bank operates a policy of ‘unnatural selection’, allowing cases that they can win to go to court whilst imposing gagging orders to prevent those who have been lucky enough to at least get something back from speaking out.
hese issues are not isolated or specific to RBS, indeed we have seen proven cases of criminal fraud and serious allegations of cover up at Lloyds/HBOS. Our All-Party Parliamentary Group does make the case for more powers for the regulator and concurs with it in our ‘Fair Business banking for All’ report that bringing SME lending under ‘conduct of business’ rules would make it easier to take disciplinary action and for businesses to get access to justice and compensation through our courts.
In evidence to the Treasury Select Committee, Tony Boorman, Managing Director of Promontory stated that there was evidence that businesses had been targeted for transfer to GRG based on their value to the bank rather than the level of their distress. If proven, this is fraud. The FCA must refer these cases to our crime agencies and make sure that they are thoroughly and robustly investigated.
Ultimately, the only way to properly determine the extent of the problems in our banking system, to repair the damage that has been done and to restore confidence in our untouchable bankers and their regulatory protectorate is through a full public inquiry.