Royal Bank of Scotland and its senior managers will not face disciplinary action over the treatment of small firms in its controversial global restructuring group, the City regulator has confirmed.
The Financial Conduct Authority (FCA) said it had concluded that its powers to discipline anyone for misconduct do not apply and added that action against senior management in the global restructuring group (GRG) for lack of fitness and propriety “would not have reasonable prospects of success”.
It said it had taken independent, external legal advice on its decisions, which found that GRG’s activities were not within its remit and confirmed “the FCA’s conclusions are correct and reasonable”.
FCA chief executive Andrew Bailey said: “It is important to recognise that the business of 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.
“Taking action was therefore always going to be difficult and challenging.”
He added: “I appreciate that many GRG customers will be frustrated by this decision, but we have explored all the options available to us before arriving at this conclusion.”
A much-anticipated independent report into GRG by Promontory Financial Group was finally published earlier this year, showing that there was “widespread inappropriate treatment of customers” inside the unit.
However, it said there was no evidence that “defaults were engineered to transfer businesses to GRG simply to generate revenue for RBS through fees”.
The FCA also said it found no evidence of dishonesty or lack of integrity.
But Mr Bailey said: “The fact that we can’t take action in no way condones the behaviour of RBS.
“We expect high standards from the firms we regulate and RBS fell well short in its treatment of GRG customers.
“We feel strongly that those companies that have suffered loss as a result of how they were treated whilst in GRG must be appropriately compensated.”
It is now “closely monitoring” the complaints process being led by retired High Court Judge Sir William Blackburne.
While commercial lending to SMEs is still not regulated by the FCA, the watchdog stressed it introduced a senior managers regime in 2016 allowing it to hold managers of banks to account for the way they treat small firms.
But the Treasury Select Committee said it was “disappointing and bewildering” for those affected by the scandal and called for greater regulation of SME lending.
Nicky Morgan, chair of the committee, said: “This demonstrates the need for a change in how lending for SMEs is regulated.
“The Government should stand ready to introduce any legislation required when it sees the outcome of current reports on redress and should also urgently consider what additional powers the FCA requires to act in cases such as GRG.”
The cross-party group of MPs defied the FCA by publishing the regulator’s confidential report in February, which laid bare the poor treatment of small firms by GRG.
It came amid widespread criticism over the FCA’s handling of the investigation and failure to make the report public.
Sir Howard Davies, chairman of RBS, welcomed the FCA’s conclusion that it will take no further action.
He said: “We await the publication of the FCA’s full account and will reflect carefully on its findings to learn any further lessons from what was a hugely challenging time for the bank, its customers and the wider economy.
“The board continues to focus on putting things right for customers through our complaints process and ensuring that past mistakes cannot be repeated.”
RBS has so far offered a total of £125 million to victims of GRG – the now defunct turnaround unit that has been accused of pushing firms towards failure in the hope of picking up assets on the cheap.