Flaws in RBS ‘New Complaints Process’ and ‘Complex Fee Refund’ – RBS GRG West Register compensation scheme examined

Royal Bank of Scotland Plc (RBS) have announced a New Complaints Process and Complex Fee Refunds for SME customers who were in their GRG division between 2008 to 2013. However, this process has serious flaws – those businesses that went into insolvency as a result of RBS GRG or West Register may only participate via an Insolvency Practitioner, former shareholders and directors have no rights in this so-called new complaints process, and there will be no independent scrutiny of how RBS handles consequential loss claims.

The GRG compensation scheme is clearly flawed but, remarkably, appears to have been approved and backed by the Financial Conduct Authority (FCA) who have not yet reported their findings and which findings RBS have announced they do not accept. When the FCA’s Andrew Bailey was appointed CEO in April, FCA Chairman John Griffith-Jones said to the parliamentary Treasury Committee that there were lessons to be learned from previous redress schemes. However, the lessons have been learned by RBS’s Mark Spurin (the controversial head of RBS’ GRG remediation project) and not by the FCA who have backed a compensation scheme which is obviously designed to limit redress to SME victims.  

What is GRG and what did it do wrong?

NatWest and RBS’s ‘Global Restructuring Group’ was a business support unit set up in the early nineties and was formerly known as ‘Specialised Lending Services’. Following the credit crunch, GRG took control of 12,000 SME customers with £65 billion of assets. Amid allegations of wrongdoing, GRG was disbanded in August 2014 and re-named ‘Restructuring Group’.

Customers expect that they will be treated honestly and responsibly by their banks. While they expect banks to make profit from lending, they do not expect banks to take money by seizing control of customer assets and businesses in a ‘Dash for Cash’. Unfortunately, as reported by the Tomlinson Report, BBC Newsnight, Buzzfeed UK and The Times, bank business support units such as RBS GRG did precisely that.

RBS Ignored Auditor’s Conflict of Interests Warnings

GRG were well aware there was a massive conflict of interest in what it was doing, in particular with respect to West Register acquiring customer assets, and their external auditors, Deloitte, warned them against such conduct[1]. However, RBS was intent on reducing its loan book to improve its capital adequacy by raising cash and in that ‘Dash for Cash’[2] process profiting from customers.

RBS was bailed out by the taxpayer which makes its misconduct all the more unconscionable. In one of the many GRG cases this firm is acting on, RBS seized 80% of a family-owned business built up over three decades and, while the family lost their business and livelihood, RBS made a huge £9 million net profit.

Saving Billions: RBS’s New Complaints Process & Complex Fee Refund compensation scheme

Remarkably RBS is advertising its so-called “New Complaints Process” and “Complex Fee Refund” scheme via paid Google AdWords. RBS is not doing this for altruistic public service reasons but because their scheme will save them significant redress and no doubt be delayed to allow legal rights to become time-barred. Examining the provisions set aside for this misconduct by RBS reveals the scheme will minimise redress payments and save RBS billions of pounds.

RBS’s Inadequate £400m GRG Provisions

Of the £400 million set aside by RBS, it is understood that automatic complex fee refunds amount to £200 million while £100 million will be expended on considering complaints, leaving only £100 million to compensate customers, which is clearly inadequate. In the IRHP review scheme, RBS provisioned £50 million in 2012 but by 2016 had spent at least £1.5 billion, which is a 2900% increase, which highlights that RBS often initially provisions misconduct compensation at a mere fraction of the true liabilities.

The sum provisioned by RBS is inadequate if fair and reasonable redress is intended for the 12,000 SME victims but will be sufficient if RBS intend to avoid properly putting right their past wrongs.

Failings in RBS GRG Compensation Scheme

The compensation scheme announced by RBS[3] appears to have been, somehow, informally approved by the Financial Conduct Authority[4] even though it is clearly inequitable as:

  1. it will not deal with the victims of GRG and West Register misconduct who no longer have control of their businesses[5] (who are often former shareholder and director stakeholders in the business ousted by the actions of RBS);
  2. while it is advertised as a “New Complaints Process”, RBS will refuse to deal with any customers who have already made ‘old’ complaints[6] via the Financial Ombudsman Service or the courts or who have threatened litigation (there is no regulatory precedent for such exclusions);
  3. RBS does not accept a number of Promontory’s findings[7](which are effectively the FCA’s findings) but will instead self-assess the customer’s complaint, with none of the FCA nor Promontory nor any skilled person playing any role or having any impact whatsoever on RBS’s decision on how to deal with its own wrongdoing (save that appeals, over direct losses only, may be made to the independent third party); and
  4. the scheme is purposefully designed to evade any independent third party or FCA review that might ensure proper consequential losses are paid to affected businesses, which will no doubt save RBS billions of pounds of redress truly owed to GRG and West Register victims (as well as millions of pounds arguing over inequitable redress proposals with skilled persons).

No Consequential Loss Oversight: RBS Avoiding Fair GRG Redress to SMEs

In most GRG cases, consequential losses will form the vast majority (if not the entirety) of the losses incurred, and consequential loss claims in the “New Complaints Process” should be determined based on established legal principles. When announcing the scheme, RBS trumpeted that it would be overseen by retired High Court judge Sir William Blackburne.

However, Sir William will inexplicably be completely excluded from RBS’s decision-making process on consequential loss claims [8]. As a result, RBS’s decisions on consequential losses will not be scrutinised or capable of being overturned by anyone independent at all. The absence of independent scrutiny or the ability to appeal to the judge over RBS’s consequential loss decisions is likely to minimise both compensation to affected businesses and the costs of the “New Complaints Process” itself.

As such, the consequential loss aspect of the “New Complaints Process” is flawed and, in the absence of explanation from RBS appears to amount to an unfair process, given that determining consequential loss based on established law is clearly a judicial role.

Evading Independent Challenge to Save £Billions redress?

RBS’s experience of the IRHP review process helps to explain why RBS has excluded any independent challenge to its decision-making on consequential losses in the GRG “New Complaints Process”. We understand that, in the IRHP review process, RBS sometimes faced and continues to face challenges to its decisions from law firms and regulatory compliance consultants acting as skilled persons (also known as “Independent Reviewers”).

If RBS did not like the decision of one skilled person, it would shop around amongst their other skilled person organisations in order to find an “Independent Reviewer” that would approve the RBS decision and therefore achieve a less costly outcome for the bank and deny the customer redress.

It seems that the “New Complaints Process” is designed to save RBS billions of pounds of redress, particularly given that RBS routinely denied redress in the IRHP review scheme to thousands of customers, often by claiming that customer losses were suffered by virtue of their placement in GRG or due to West Register, which issues were said to be outside the scope of the IRHP review. Now, when it is time to consider the impact of GRG and West Register wrongdoing, RBS’s decisions will not be scrutinised by anyone independent at all.

RBS seem to have learnt from recent review experiences and carefully devised their “New Complaints Process” in an effort to possibly minimise the economic costs not only of compensation but of the regulatory review itself. The compensation scheme seems set to possibly minimise compensation on a massive scale. It is possible that RBS are spending millions to save the billions of pounds of redress owed to GRG customers.

Has Mark Spurin created a GRG Customer Redress Scheme that evades true redress, yet is FCA-backed?

This process of lowering the cost of true compensation is consistent with the pattern of a previous voluntary misconduct review scheme led by RBS’s Mark Spurin, who is now leading the GRG resolution process[10].

In May 2016, The Times newspaper’s City Editor, Harry Wilson warned that Mark Spurin, the former head of Project Rosetta (the IRHP review scheme), was being put in charge of a programme to look at victims of its global restructuring division:

“The appointment of Mr Spurin to the sensitive role could raise questions, given complaints about RBS’s handling of the previous scheme. Rosetta has been criticised by victims and politicians for failing to properly compensate individuals and businesses who had their livelihoods destroyed by the mis-selling of complex interest rate derivatives. Mr Spurin was in charge of Project Rosetta until late last year. While many banks have been criticised about their own schemes, RBS has faced more questions than others as it was the largest seller of interest rate hedging products to small and medium-sized businesses.”

Harry Wilson, City Editor, The Times

In their past self-review of sales of interest rate hedging products (IRHPs), RBS minimised redress payments to SME customers. In those cases, thousands of RBS customers, based on data released by the FCA,[11] found that they had inadequate redress offers but had lost their right to commence legal action as they failed to protect their legal rights in time.

RBS Delays Result in Time-bar of SME Litigation

By discouraging customers from bringing litigation and operating a dilatory complaints process, the majority of legal claims faced by RBS will become time-barred. This aspect of RBS’s voluntary misconduct correction schemes leaves the customer with no avenue of legal appeal when such schemes are delayed (as is often the case).

Those customers whose legal rights have lapsed may find themselves in disagreement with RBS’s decision and in the position that they can only complain to the Financial Ombudsman Service. The FOS often refuse to accept jurisdiction for most SME businesses and when they do act for micro-enterprises, there is a compensation ceiling of just £150,000.

RBS have made (and will continue to make great play) of their appointment of Sir William Blackburne as a so-called ‘Independent Third Party’[9] but the true test of the learned judge’s robustness will be whether he exercises judicial fairness by automatically protecting customers’ legal rights from any time-bar while their complaints are being considered by RBS. However, we suspect that the Judge will be powerless in this regard.

Victims of GRG must protect their legal rights, something that can usually be done for a relatively low cost via a standstill agreement or by issuing protective proceedings.

FOOTNOTES

[1] Deloitte’s 2012 Management Letter https://www.documentcloud.org/documents/3127477-RBSG-Non-Core-and-GRG-DRAC-Management-Letter.html#document/p8/a321211 via Heidi Blake, BuzzFeed.

[2] See the 10 October 2016 Buzzfeed article: ‘The Dash For Cash: Leaked Files Reveal RBS Systematically Crushed British Businesses For Profit’ at https://www.buzzfeed.com/heidiblake/dash-for-cash

[3] See ‘RBS Launches a New Complaints Process and Refund of Complex Fees for SME customers in GRG’ at: https://www.rbs.com/rbs/news/2016/11/GRG.html

[4] “The steps we have announced have been developed with the involvement of the FCA who agree these actions are appropriate steps for us to take now.” per https://www.rbs.com/rbs/news/2016/11/GRG.html

[5] “Can I complain if my company is insolvent?  Yes, you can complain. However, we are only able to deal with the officials of the company presently appointed and listed at Companies House. So you will also need to engage with the relevant person at the Administrator or Liquidator should you wish to complain” per https://www.rbs.com/rbs/news/2016/11/GRG.html

[6] “Are there any reasons why you won’t review my complaints? Yes. The review process is not appropriate for complaints that have previously been the subject of a decision by the Financial Ombudsman Service (FOS) or of the courts. It also may not be appropriate to consider complaints from customers in ongoing litigation against the bank or who have threatened litigation in formal Letters Before Claim unless the customer and RBS agree to stay those proceedings while the complaint is being considered” per https://www.rbs.com/rbs/news/2016/11/GRG.html

[7] “We accept many of Promontory’s findings but there are a number of aspects where we have a different view.” per https://www.rbs.com/rbs/news/2016/11/GRG.html

[8] “The process for consideration of claims for consequential loss will not be overseen by the Independent Third Party and there will be no right of appeal to the Independent Third Party in respect of consequential loss claims” per https://www.rbs.com/rbs/news/2016/11/GRG.html

[9] Sir William Blackburne. RBS claim that “Sir William’s appointment as Independent Third Party adds a robust, transparent and independent step to the complaints process, should SME customers who were in GRG wish to complain about their treatment or challenge the bank’s decision on a previous complaint.

[10] See Harry Wilson’s Times article ‘Rosetta executive to review RBS Global Restructuring Group claims’ at http://www.thetimes.co.uk/article/rosetta-executive-set-to-receive-rbss-next-wave-of-compensation-claims-wkc3lnqwf and also https://lexlaw.co.uk/solicitors-london/grg-review-rbs-mark-spurin-minimise-grg-review-compensation-payouts-smes/

[11] https://www.fca.org.uk/publication/data/aggregate-progress-final.pdf