RBS sets aside £400m to refund small firms over financial crisis 'mistreatment'
Royal Bank of Scotland (RBS) is putting aside £400 million to help compensate as many as 4,000 small and medium-sized businesses following allegations that they were mistreated by the bank's Global Restructuring Group (GRG) after the financial crisis.
The lender said over £300 million will be put towards an "automatic refund of complex fees" paid by such firms between 2008 and 2013, while just under £100 million will apply to operational costs of a new complaints process to handle related claims.
As many as 4,000 of the 12,000 customers transferred to the bank's GRG unit during that period are believed to be eligible for compensation.
RBS said in a statement: "As the bank has acknowledged, in some areas, it could have done better for SME customers in GRG.
"Specifically, the bank could have managed the transition to GRG better and should have better explained to customers any changes to the prices or complex fees it was charging.
"The bank accepts that it did not always communicate as well or as clearly as it should have done. The bank also did not always ha ndle customer complaints well."
The "complex fees" for which affected customers will be refunded include management and monitoring, risk, exit and asset sales fees, the Financial Conduct Authority (FCA) said.
RBS explained that the £400 million provision would be included in its fourth-quarter results.
However, chief executive Ross McEwan told journalists during a conference call that the total provision could rise, depending on the level and outcome of related complaints.
It will add further pain to the bank's balance sheet, having swung to a £469 million loss in the third quarter.
RBS shares were down around 1% in early trading following the news.
The FCA, which helped develop plans for the compensation and new complaints process, said these were the "appropriate steps for RBS to take".
The regulator said the bank's "inappropriate treatment" of small business customers included poor and in some cases "misleading" communication, an undue focus on price increases and debt reduction without considering whether it helped businesses in the long term, a failure to handle customer complaints fairly, and a failure to document rationale behind pricing.
While customers transferred to RBS' GRG were found to be "exhibiting clear signs of financial difficulty", the FCA stopped short of confirming earlier reports and allegations that the bank intentionally pushed businesses towards failure in hopes of picking up their assets on the cheap.
The regulator said it is still in the process of reviewing the GRG.
In its statement, RBS stressed that the period "was a very challenging time for the bank and its customers", saying that an unprecedented number of businesses were falling into financial distress, with a 400% increase in the number of customers transferred to its restructuring branch between 2008 and 2013.
Mr McEwan apologised for the lender's missteps: "We have acknowledged for some time that mistakes were made.
"Some of our customers went through what was a traumatic and painful experience as a result of the crisis.
"I am very sorry that we did not provide the level of service and understanding we should have done."