City watchdog has no power to take action against RBS over disgraced small business restructuring unit

FCA boss said regulator's inability to act 'in no way condones' bank's behaviour

A report into the bank's actions towards small businesses was published last year after much wrangling (Reuters)

The City watchdog has confirmed that it has no power to take action against RBS senior managers over their treatment of small firms involved with the bank’s disgraced global restructuring group.

The Financial Conduct Authority last year launched an investigation into the unit of Royal Bank of Scotland set up to help struggling businesses. GRG, which operated between 2005 and 2013, has been accused of pushing firms into bankruptcy in order to maintain its own profits.

In an update to the investigation delivered on Tuesday, Andrew Bailey, the FCA’s chief executive, said: “Given the serious concerns that were identified in the independent review it was only right that we launched a comprehensive and forensic investigation to see if there was any action that could be taken against senior management or RBS.

“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 but after carefully considering all the evidence we have concluded that our powers to discipline for misconduct do not apply and that an action in relation to senior management for lack of fitness and propriety would not have reasonable prospects of success.”

Mr Bailey said the FCA had consulted with independent, external leading counsel who confirmed that its conclusions were “correct and reasonable”.

“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,” he said.

Earlier this year, MPs published a report which slammed RBS over GRG’s “widespread inappropriate treatment” of customers. The report, compiled by consultancy firm Promontory, was only made public after months of wrangling with the FCA, which received the document in 2016 but refused to publish it.

The FCA’s boss added that the fact the watchdog cannot take action against RBS “in no way condones” the bank’s behaviour.

“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,” Mr Bailey said.

He said the regulator is closely monitoring the complaints process overseen by Sir William Blackburne, an independent third party, to “ensure that things are put right”.

RBS chairman Howard Davies said: “The board welcomes the FCA’s confirmation that it has concluded its investigation into the bank and that no further action will be taken. 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. The way the bank deals with business customers in financial difficulty is fundamentally different now.”