Following allegations that RBS had grossly mistreated its SME customers through its Global Restructuring Group (GRG), the Treasury committee has released the Financial Conduct Authority’s (FCA) report under section 166 of the Financial Services and Markets Act 2000. This decision has not been taken lightly. Usually, such reports are treated confidentially by the FCA. Despite reports that full disclosure of the report could lead to legal action from RBS managers, the government considered its findings so significant that its contents were undoubtedly in the public interest.
GRG was set up specifically to assist businesses struggling financially and return them to a better position than they were in previously. However, the report found that GRG was guilty of ‘widespread inappropriate treatment’ of its customers. The bank prioritised exploiting its SME customers for higher fees over the best interests of the businesses and pushed them towards more extreme financial distress than they originally faced.
The 2008 financial crisis saw small businesses struggle and approximately 5900 SMEs were referred to GRG as a result. The purpose of GRG was to return defaulting businesses to health and ensure they could continue operating successfully. However, GRG was also tasked with creating profit for RBS, a conflicting objective which the report found was strongly prioritised and led to action which was ‘unfair and inconsistent with genuine efforts to turn a distressed SME around.’ As a result, businesses which could have operated successfully headed towards insolvency despite being told that GRG had the expert focus to restore them to financial health.
Transfer to GRG
Customers would be transferred to GRG if it appeared that they couldn’t fulfil their obligations to the bank or if they had defaulted. Businesses reported that they had little or no understanding of why they were being transferred to GRG, had no support throughout the process and felt ‘bullied and exploited’ by the bank. Sometimes, transfers to GRG were initiated too late for it to help the business return to health.
GRG is only a solution for a business where it is viable, meaning that it can survive and grow financially. However, the bank had no definition or assessment for business viability, meaning that it was impossible to ensure that transfers to GRG were accurate or appropriate.
The report found that customers were heading into the unknown, with little knowledge about what to expect, what the impact might be on them, and what role the bank was going to play going forward. Entering GRG may have increased the difficulty customers had moving to other banks or providers of finance. The transfer process was not transparent, and communications with customers were poor and misleading with 45% of customers in 2013 confirming they were ‘very or fairly dissatisfied’ with GRG’s communication of reasons for transfer.
Profit over Protection
Despite GRG’s objectives, the report found that, ‘there was little that could be described as focusing on customer outcomes or on the success of the turnaround objective’ and that GRG acted as a ‘profit centre’. For example, overdrafts were withdrawn, and pricing was increased without proper consideration of the impact on the ability of the business to trade. Additional personal guarantees were sought from directors. The bank’s decisions, according to the report, ‘clearly had the potential to exacerbate the already difficult circumstances in which customers found themselves. They also had the potential to have a significant bearing on lives and livelihoods.’
Overdrafts are essential to a business as they allow leeway to balance the timing of payments to suppliers with income from sales. The bank was, therefore, according the report, able to pull the rug from underneath the business and hinder its ability to trade. In many cases pricing ‘changed with surprising frequency’ with little or no explanation to the customer for the increase. Relationship Managers could do as they pleased with little checks and balances.
Returning a business to financial health requires individualised solutions and specialised support. Particularly in small businesses, personal finances are intertwined with the business meaning that livelihoods depend on the success of the business. However, GRG staff had no bespoke training on business turnaround but attended a 2 day compulsory course on the pricing of credit facilities.
The report also reviewed 46 minutes of GRG’s Risk and Controls Committee meetings. They contained ‘scant consideration’ of customer risk and instead focused on credit issues. Key risks to customers were not communicated, and staff were valued by their ability to generate profit for the bank over their assistance of the customer.
A staff memo named “Just Hit Budget!” made some shocking revelations into GRG’s internal culture. It advised staff that ‘if they sign, they can’t complain’ and that ‘missed opportunities will mean missed bonuses.’ It also ordered staff to ‘be specific - avoid round number fees, £5,300 sounds like you have thought about it, £5k sounds like you haven’t.’
The cut-throat nature of GRG’s policies was well detailed within the memo - ‘Rope: Sometimes you need to let customers hang themselves. You have then gained their trust, and they know what’s coming when they fail to deliver.’ It even recommended getting customers to ‘agree chunky fees and upsides and thank you for it.’
This attitude was not isolated to “Just Hit Budget!” Complaints handling was branded dismissive. It was noted that “zero justifiable complaints” were made and that complaints were “hazards of the role that should not be considered an indication of a material failing”.
Does this ‘widespread inappropriate treatment’ translate in the final outcomes for its customers? Unsurprisingly, yes. The report found that 51% of customers remained in GRG and 23% were in the process of going under. While 15% exited RBS, only 10% of GRG customers returned to mainstream banking. Therefore, only 10% of customers actually benefited from the alleged purpose of GRG.
How we can help
The report condemned GRG’s ‘intentional and coordinated strategy’ of generating fees over assisting its customers return to good financial stead. It recommends that RBS should consider providing redress to its GRG customers who are likely to have experienced financial distress as a result of its actions. RBS has reportedly set aside £400 million to compensate customers who have been mistreated.
If you think you may have a claim against RBS for being placed into GRG or have any questions arising out of this blog, then please contact our Dispute Resolution team on 0131 226 8200