Is latest fine for RBS merely the tip of the iceberg?
How much more bad news is there still to come, and what impact will it have on confidence, asks James Moore?
Royal Bank of Scotland has returned to the bottom of the banking class, with a £14.5m fine for up to 30,000 cases of providing poor advice to mortgage customers. And a report into its failings contains disturbing evidence of troubles to come. However, none of the cases linked to the latest fine relate to its subsidiary, Ulster Bank.
At the beginning of August the company was briefly the belle of the banking ball, having caught just about everyone on the hop by rushing out news of a better than expected £2.6bn first-half profit a week ahead of schedule – including £55m for Ulster Bank Ireland-wide.
But its statement also warned of "significant conduct and litigation issues that will likely hit our profits going forward". No-one expected one of them to hit quite so soon.
In its 34-page disciplinary "decision notice" outlining why it is fining the bank, the Financial Conduct Authority (FCA) raises a number of issues that have repeatedly come back to bite the bank – and they can't all be pinned on the misrule of the former RBS boss, Fred Goodwin.
Perhaps the most disturbing of these is its finding that "until October 2012 there was no team or individual at the firms [RBS and its NatWest subsidiary] who in practice took responsibility for the end to end advised mortgage sales process".
Worryingly, that resembles what Sir Andrew Large, the former deputy Governor of the Bank of England, said in his review of the bank's lending to small businesses, when he found "there is no single point of responsibility for the entirety of the SME business".
In a critical report, Sir Andrew highlighted how management shake-ups had "fragmented overall responsibility for meeting RBS's objective of supporting the small business sector".
Significantly, the FCA also points to repeated reorganisations that seem to have failed to do anything to tackle the core problem. And, worse, it said RBS was aware that no-one was at the tiller of advised mortgage sales before the Financial Services Authority – the FCA's predecessor – first raised issues with the bank in November 2011.
Poor organisation has been emphasised in various reports, and appears to have been an issue throughout the reign of the former chief executive, Stephen Hester (who is now at insurer Royal & Sun Alliance).
He was widely praised for stabilising a reeling RBS, after he was parachuted in to pick up the pieces in the wake of the bank's multi-billion pound bailout. But both the mortgage and small business lending problems that have since emerged at the bank suggest that a lack of focus on some key issues persisted during Mr Hester's tenure.
And it raises the question: what else was being missed or not properly overseen during a period of intense upheaval?
The second recurring issue highlighted by the report concerns IT failings. These have been a constant bugbear for RBS, with problems first coming to light when customers found themselves locked out of their accounts in the summer of 2012 – in the worst cases for a number of weeks.
Customers of Ulster Bank were particularly badly hit.
Further problems affecting online and mobile accounts followed in 2013, and again this year. The FCA found that not only were the bank's systems functioning poorly – they were also badly designed.
The IT failings relate directly to the Goodwin era, when integrating the systems in the wake of a string of deals – and ensuring that they were something approaching best in class – appears to have been accorded a low priority.
Problems keep coming to light. How many more hits will the bank take from previous managers' cavalier disregard for what savvy businesses regard as a top priority?
RBS's riskiest advisers were able to receive bonuses even if all reviewed sales were adjudged to be non-compliant by the bank's own staff over a three-month period. But dysfunctional pay policies are hardly unusual in banking. Lloyds was fined £28m in December for "flawed" incentive schemes.
Silver-tongued salespeople overstepping the mark are also, sadly, endemic to the industry. The FCA said one RBS salesperson told a client that interest rates would "absolutely" rise to as much as 5.5% before recommending a five-year fix. "If we don't increase rates with this double-dip recession the economy is in dire straits. Rates will rise. If you take a two-year deal then rates will be higher after this period," it was said.
While no consumer detriment has been found to date, it's thanks to that sort of thing that RBS is having to write to 30,000 people who dealt with its advisers. Ross McEwan, the RBS chief executive, said last week: "It is clear that in the past the bank just didn't get this right. This was unacceptable and should never have happened.
"When I joined the bank we completely overhauled our processes, and took all our mortgage advisers off the front line for an extensive period of time to get the training required. We are now helping more customers than ever before to buy their new home, providing them with the very best support and advice.
"Today's notice shows that we still have challenges to face, but we are determined to take the steps needed to earn back our customers' trust."
The question for all those connected with RBS is how many more such statements will he have to issue? And will it be possible to win back the customers' trust, when all the bank's dirty laundry has finally been aired?