RBS’s Global Restructuring Group (GRG) put “undue and inappropriate focus” on income, without consideration to debtor SMEs’ ability to repay, a review on behalf of the Financial Conduct Authority (FCA) has found.

The independent review was commissioned by the FCA to third-party financial services firm Promontory, following allegations made in 2014 that SMEs transferred to GRG to turn their credit situation around had been mistreated by the unit.

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Additionally, a central task of the review was assessing whether changes or removals of asset-based finance agreements had caused distress to otherwise viable businesses.

The FCA published an interim summary of the report in October, and has now unveiled the full findings.

The review found no evidence that RBS drove struggling SME clients out of businesses in order to seize their assets.

It also stated that:

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  • the right to increase pricing margins was included in the terms of contract of a facility;
  • higher pricing demands enabled the bank, in principle, to address the higher risk of continuing to do business with a less viable customer;
  • in some cases, the fact that a customer entering GRG had defaulted on a facility meant that they were in breach of the contract, allowing RBS wider discretion in how to handle their case.

Measures like seizing assets or pushing for a refinancing through a third party were not deemed inappropriate by Promontory, particularly when there was no prospect of repayment.

However, the review did take issue with the decision-making culture at GRG and the general treatment of its customers. Among the key failings highlighted:

  • RBS did not implement the level of internal oversight expected of a turnaround unit, despite receiving legal advice on the matter in 2011 and revising its internal policies in 2013;
  • a lack of supervision resulted in frontline staff basing their valuations only on prospective revenues for RBS and GRG, without considering customers’ ability to sustain costs;
  • GRG used pricing as leverage to force businesses to take the route favoured by the unit, with little account given to customers’ weaker negotiating position;
  • occasionally, pricing was increased even if the debt was being reduced;
  • in many cases where businesses would have benefitted from RBS’s forbearance, or from modest cash injections, RBS nevertheless withdrew their support.

Though more than a third of business customers sampled by the review were “clearly not [financially] viable,” almost all of viable SMEs had experienced some form of inappropriate treatment on RBS’s part, with 16% deemed likely to have fallen in financial distress precisely because of GRG’s decisions.

Nevertheless, the review said it was difficult to establish a clear-cut causal relation between GRG’s actions and SMEs’ ensuing distress. Reasons cited, among others, were RBS’s deficiency in providing rationales when valuing assets and a staff culture of “zero justifiable complaints” preventing an internal revision of practices.

Drawing conclusions from RBS’s case, the review encouraged the FCA to work with the government “and  other relevant parties” to protect “less sophisticated SMEs”. Measures suggested included:

  • expanding the remit of the Financial Ombudsman Service (a step that the FCA is already considering);
  • creating an independently overseen code for how banks should support businesses in distress;
  • reviewing relationships with third parties in charge of valuations or refinancing of customers’ debt; and
  • reshaping units like GRG in order to balance the commercial and the turnaround objective.