With the release of the RBS GRG Section 166 report into the public domain, we must once again ask ourselves, when do we say enough is enough? Following on from our debate on 18 January 2018, which set in motion the chain of events that led to the publication of the report, the APPG on Fair Business Banking is once again calling for an industry-wide inquiry that covers the full matrix of financial institutions and their professional advisors.
We also reiterate the need for an appropriate, independent system for dispute resolution and redress. In the meantime, we call for all existing actions by RBS against businesses and individuals that were in GRG to be halted. This includes litigation and the appointment of LPA receivers or administrators which could jeopardise the opportunity for business owners to obtain full redress. We must not forget that many of these cases are still ongoing, and are not a matter of ‘past misconduct’.

RBS Section 166 Report
There is no doubt it is in the public interest that the full report has been published, and it is long overdue. It makes uncomfortable reading, identifying failures of governance in every aspect investigated and at every level of RBS.
The report provides context to, and confirmation of, many stories MPs have heard over the last few years from constituents and campaign groups. It is a national disgrace that the failings within RBS and the abuse of its customers have been allowed to continue for so many years and that so many businesses and lives have been devastated by the actions of a UK bank.
We welcome Promontory’s detailed recommendations for RBS and also the lessons for the wider market. Specifically, Promontory identifies many key points about the relationships between banks and their business customers that the MPs and the APPG have been raising for years. It is refreshing to see the issues facing businesses so clearly illustrated and the call for the FCA to work with Government to ensure that there are adequate protections in the future.

Further Exploration Required
Inevitably the report and its scope throw up concerns which we feel need further investigation:

1. The effect of IRHPs and fixed-rate loans
The parameters of the report meant that the root cause of financial difficulty for firms was not adequately explored. The report mentions IRHPs but only in the context of turnaround saying that there was ‘a failure to appreciate the impact of IRHP agreements’. It does not acknowledge the extent of RBS’ widespread mis-selling of IRHPs and fixed-rate loans (which had similar costs and exit fees due to associated hedging) as the cause of the financial distress which led to many companies being transferred to GRG. It is vital to establish this causality to ensure that customers receive proper redress for their overall treatment by the bank. The issues are inextricably linked.

2. The omission of larger companies
Only companies with lending of less than £20 million were included in the report. Given that the treatment of larger companies was unlikely to have been materially different, it is probable that redress is due to companies in this sector. These companies were often large employers, and we must examine the economic impact that this had in terms of job losses. The high asset values would also have significantly impacted West Register profits and should be investigated.

3. Redress for owners of businesses made insolvent through bank misconduct
The report states that ‘RBS should consider the practicalities of providing redress to GRG customers who are likely to have experienced financial distress as a result of its actions.’ This is welcomed but many businesses were put into administration and no longer exist. This makes redress impossible under the current insolvency system where the bank is the major creditor. Independent forensic analyses of all of these cases are needed so that the ex-Directors and shareholders can be compensated directly by RBS as appropriate.

4. The role of professional advisors
As highlighted in the debate on January 18th, the role of associated professions must be scrutinised. The report highlights major conflicts of interest in the use of secondees from law firms and insolvency practitioners. Down-valuation of property by bank-appointed surveyors leading to breach of contract was a key finding in the Tomlinson report and is the most common trigger point leading to destruction of businesses, as reported by constituents. Promontory’s report did not fully research the role of professional advisors, particularly surveyors, and RBS’ relationship with them which could lead to conflicts of interest. Specifically, whilst the report said it could not find evidence of down valuations, it also stated it could not in many cases find any basis for the valuations. In other words, we cannot be sure if these valuations were legitimate or not. This is a critical point. We need to ask how much insolvency practitioners, accountants, auditors, LPA Receivers and surveyors helped to facilitate the damage and destruction of UK businesses while profiting from the work.

Redress for Victims
The protracted time it has taken for the report to be published has left many businesses time-barred from taking action through the courts. Their only avenue to redress is through the current compensation scheme but the narrow remit of this does not consider the extensive damage that has been done to businesses.
The fact that RBS does not even acknowledge that there is potential for further liabilities is deeply worrying. This has been highlighted by the current public position of RBS that most of its ‘legacy’ issues have been dealt with, the only significant outstanding liability is the fine from the US Department of Justice. That position can only be based on the knowledge that the compensation scheme is sufficiently limited to not provide substantive redress to the thousands of businesses RBS is responsible for damaging.
Business owners currently have no proper means of redress. An independent system for redress, including an assessment of consequential losses, must be implemented as a priority, not just for RBS, but for the many business customer who are not having their complaints adequately addressed by mechanisms currently in place. The APPG will shortly be releasing the terms of reference for a white paper that will provide detailed recommendations for this.

The Role of the FCA
Serious doubt has been cast over the independence and rigour of the regulator. We are very concerned with the fundamental differences between the tone and conclusions of the FCA summary and the full report. Andrew Bailey has admitted that RBS sought to water down the main report which begs the question as to why the summary was such a poor representation of the facts.
We are particularly concerned that the FCA has decided not to move on Phase 2 of the report despite the gating factors for this being met. We understand that it has taken on a focused investigation internally but we believe that Phase 2 should be undertaken by a body independent of the FCA.

Lessons for the Wider Lending Industry
We must remember that behaviour like this is not unique to RBS and has been seen in most of our financial institutions. Analysis of what happened at RBS therefore provides useful lessons for the wider industry, and the same questions must be asked.
The APPG has come across similar instances among most banks and building societies. In fact, it is hard to identify a major institution that has not found itself accused of serious misconduct. The HBOS Reading fraud, for which bankers and their associates were jailed for a total of 47 years earlier this year, may seem easy to push to aside as ‘a few bad apples’. In reality, though, it is a consequence of the same systemic failures.
The economic background to the activities of RBS in this report was the same as faced by other institutions. Like RBS, they too had liquidity problems at this time and were looking to dispose of non-core lending or exit certain markets. Unregulated business lending was an easy target, a piggy bank waiting to be raided by any means possible, regardless of the consequences for the business owners.

A Public Inquiry
Even now, as the full picture becomes clear, we are still not addressing it properly. Why? Because our response thus far has been piecemeal. We must take a step back and look at the entire ecosystem in which such behaviour managed not just to survive, but to thrive. It is critical that not only are individuals held to account but the root causes of this enormous and wide-reaching UK scandal are brought to light.
A full public inquiry is essential to understand the extent and impact of this behaviour on UK businesses to ensure that this never happens again. This is not just a question of changing culture, but of getting right to the bottom of the issues. Appropriate regulatory and legislative boundaries must be set to ensure that behaviours such as we have seen over the last decade are prevented or, if they occur, are identified early, and dealt with swiftly and robustly.