Watchdog ‘will not rush’ after receiving delayed RBS report

Eddie and Cheryl Warren, former owners of The Bold Hotel in Southport, have spoken about the personal toll of losing their business after an encounter with GRG

The Financial Conduct Authority has received the final version of a much- delayed report into alleged misconduct at Royal Bank of Scotland’s restructuring division.

However, despite the completion of a review it commissioned on the activities of the bank’s Global Restructuring Group, the City regulator gave no timetable for issuing the findings.

With publication now two years overdue, the FCA told companies that the process must not be rushed. Those companies claim they were charged excessive and opaque fees by GRG and that they were unfairly pushed out of business by the division.

The FCA said: “There are a number of steps for the FCA to complete before we are in a position to share our final findings, which will include an assessment of all relevant material, of which the . . . report is one. This has been a complex and lengthy review. It is therefore important that we do not rush the final stages of this process.”

One of the outstanding questions for the regulator is whether or not a compensation scheme for alleged victims should be established.

Affected companies are concerned that potential legal claims may expire while they wait for the findings to be issued. There are also complaints about the lack of clarity over what form the findings will take.

The review was conducted by Promontory, a financial consultancy, and Mazars, an accountancy firm.

Documents seen by The Times show that RBS customers who were interviewed by reviewers were told that “the FCA will determine whether it will publish, in full or in part, the report. We will not be able to provide copies to customers.”

RBS has seen the report. A “draft” version of the review was received by the FCA in April and sent to the bank. It is understood that this interim version was subsequently returned to Promontory and Mazars to be finalised.

Steve Wilkinson, a Sheffield-based businessman and RBS customer who provided evidence to the reviewers, said: “I have been advised by my solicitor to wait for the review. I am not on my own. There are hundreds if not thousands of businesses in the same boat. As each day goes by, genuine claims will be time-barred.

“I now doubt that the [full] review findings will ever see the light of day. This is a sorry state of affairs for the small and medium-sized companies who are the lifeblood of the economy.”

Andrew Tyrie, the Conservative chairman of the Commons’ Treasury select committee, said that it was “better to get to the bottom of what’s happened than rush it”, but added: “This does seem to have the characteristics of watching a kettle and waiting for it to boil.”

A group of companies has threatened the FCA with legal action over the delays to the review. The GRG Business Action group wrote to Andrew Bailey, chief executive of the regulator, last month saying that its members would begin proceedings against it in the High Court unless they were given assurances that the report would be published imminently.

In July, Mr Bailey told the Treasury committee that he hoped the report would be published this year.

Comment: The waiting game with no result

The waiting game for hundreds of affected companies goes on. It has been almost three years since Lawrence Tomlinson, an entrepreneur who was then a government adviser, published a report accusing Royal Bank of Scotland’s restructuring division of serious misconduct (James Hurley writes).

Small and medium-sized companies, he claimed, were being systematically forced to the wall by Global Restructuring Group, the bank’s restructuring division.

The Financial Conduct Authority announced a review into the allegations the following month. Since then, progress has slowed to a crawl. With the review two years behind schedule, there is still no firm publication date.

RBS denies what it calls Mr Tomlinson’s “principal allegation”: that it sought to “artificially distress” viable companies.

Last year, The Times revealed that as the bank was under pressure to repair its balance sheet, it could improve its capital position by reducing its exposure to certain businesses and sectors, including many small and medium-sized companies. The FCA reviewers have heard even more serious allegations. These include the claim, denied by RBS, that assets that loans were secured against were subjected to

unfair revaluations to provoke a breach in debt facilities. It is also alleged that West Register, RBS’s property division, benefited from inside information from GRG when it bought up customers’ assets.

Among West Register’s purchases was The Bold Hotel in Southport. Its former owners Eddie and Cheryl Warren have spoken about the huge personal toll of losing their business after an encounter with GRG.

The FCA has blamed “the complex nature of the review and the seriousness of the allegations” for the delays. Fair enough, but with hundreds of people in a similar position to the Warrens, the regulator must pay heed to the urgency of letting alleged victims know where they stand.

 

RBS to relive unpleasant memories as investor lawsuit looms

Reuters – UK Focus – 5 hours ago

Investors hurt in 2008 rights issue eye billions

* Unsuccessful summer talks tee up costly case in March

* Former boss Fred Goodwin may be called as defence witness

* RBS CEO says ready for court if “fair” deal not reached (Adds further RBS (LSE: RBS.Lnews) comment)

By Andrew MacAskill and Sinead Cruise

LONDON, Aug 22 (Reuters) – At an English country mansion last month, lawyers for Royal Bank of Scotland (RBS) sat down with representatives of angry shareholders to broker an end to what may end up being the costliest case in British legal history.

The meeting at The Grove, an 18-century estate near London that served as the secret World War Two HQ for Britain’s biggest railway company, was convened to persuade investors to drop claims they were misled into stumping up 12 billion pounds ($16 billion) just a few months before the bank’s bailout in 2008.

But the low-profile gathering came to nought, an outcome that could have huge implications for Royal Bank of Scotland’s recovery as it risks adding up to 6 billion pounds to the lender’s litigation bill, lawyers said.

Once a small Scottish retail bank, RBS staged a meteoric rise to global prominence over two decades with an aggressive expansion that threatened to topple the UK financial system.

By early 2008, bad bets on toxic mortgage debt, increased loan defaults and a highly leveraged takeover spree had left RBS’s balance sheet in desperate need of capital, and management turned to investors for the ill-fated cash call.

More than 35,000 shareholders who took part, including some of Britain’s biggest institutional investors and public pension funds, allege RBS deliberately concealed the extent of its financial woes when it raised the money in April 2008.

The bank succumbed to a 45.5 billion pound bailout just six months later in October and has since failed to post an annual profit. The shares issued in the rights issue have lost nine-tenths of their value, and the investors who bought them now want to be compensated.

At the meeting at The Grove, RBS offered investors about 700 million pounds, according to two sources present, but the claimants reckon they should get 4 billion pounds in damages, plus another 2 billion in interest and legal fees.

“They are offering pennies when we are after pounds,” said one lawyer, who asked not to be named because the talks are confidential. “We are never going to meet in the middle. So we are now focused on pursuing the actions through the courts.”

TOO FAR APART

The next pre-trial hearing is scheduled for Sept. 8 at the High Court in London. Over the next few months lawyers on both sides will learn who will be called as witnesses.

Former RBS Chief Executive Fred Goodwin, who has shouldered the blame for the bank’s rapid demise from national treasure to national disgrace, is likely to be called, dealing another blow to the lender’s efforts to draw a line under its troubled past.

RBS, which is now 70 percent state owned, has always denied any wrongdoing and said its former bosses did not act illegally.

“We continue to strongly defend these claims,” the bank said in a statement.

“We have always been clear that the bank is open to exploring an out of court resolution to matters, consistent with our legal obligations,” RBS said.

The bank flew in commercial dispute resolution specialists from the United States and New Zealand to mediate at The Grove, one of the sources said, demonstrating the lender’s desire to avoid a lengthy stint in court.

“We all thought we were going to get a deal,” said another source at the talks. “The strategies are going to evolve over the coming months, but I think the parties are too far apart to get a deal.”

Scheduled to begin in March, the case comes just as RBS is preparing to settle a record U.S (Other OTC: UBGXFnews) . fine for mis-selling mortgage bonds before the crisis and shows how deeply the 2008 financial crisis haunts what was once the world’s biggest bank by assets.

The investor lawsuit says RBS made no mention in its prospectus for the cash call that its capital levels had fallen below the regulatory minimum; that the government had ordered the bank to raise the cash, or that RBS was already using $11.9 billion of “secret” loans from the U.S. Federal Reserve.

INFORMATION TRAIL

The first part of the trial to establish if RBS must compensate shareholders is scheduled to last six months. If it loses, another case may decide how much it must pay and lengthy appeals are expected, sources close to the matter said.

So far, RBS has been forced to disclose 25 million pieces of information, including private emails and other messages sent by senior executives at the time, to lawyers who are hoping to prove that management deliberately hid evidence of the bank’s deteriorating health before shareholders were tapped for cash.

The initial stage of the trial is expected to generate defence and prosecution fees of about 140 million pounds because of the number of claimants and the complexity of the case, according to four sources working on it.

If those estimates are correct, the case will become the most expensive in British legal history, exceeding the almost 100 million pounds of costs incurred during the News Corporation (Frankfurt:A1W048news) phone-hacking trial.

But some of the bank’s shareholders say the U.S.-style shareholder class action suit against RBS is counterproductive and will just delay the point at which the bank can return capital to shareholders by resuming dividend payments.

“Institutional investors suing themselves for the enrichment of the lawyers is bananas but it is what it is,” one shareholder, who declined to be named, told Reuters. “It chips away at the investment case, which is the return of surplus capital.”

“Analysts typically have a few billion for the Department of Justice (settlement) but they’ve not had much in for the shareholder litigation … you could be thinking, what surplus capital?” the investor said.

RBS CEO Ross McEwan has admitted he is worried about the damage the case could inflict on the bank’s battered reputation but he has also said he could not agree to a settlement that was unreasonable and is ready to fight if the case reaches court.

“We have to assess this from many angles. One of those is the public reputation but the other one is for our shareholders … we shouldn’t be signing up for something that we don’t think is fair,” he told reporters this month.

“It will be very public. But so be it.” ($1 = 0.7613 pounds) (Editing by David Clarke)

FCA branded ‘inadequate’ as MPs call for new bank watchdog

It took seven years to publish a report into failures at HBOS and only one executive was ever sanctioned

Independent Richard Partington Tuesday 26 July 2016

18 Andrew Tyrie.jpg

Andrew Tyrie, chair of the Treasury Select Committee has called for a new body to enforce bank regualtions

Britain needs a new financial watchdog to punish wrongdoing and to win public confidence, further reshaping a regulatory structure that was overhauled just three years ago, MPs on the Treasury Select Committee have said.

A new enforcement body should operate separately from the Bank of England’s Prudential Regulation Authority and the Financial Conduct Authority to help prevent a repeat of the “inadequate” response to the near collapse of British lender HBOS in 2008, the committee said in a statement on Tuesday.

The new organisation would be made up of the enforcement departments of the PRA and the FCA, it said.

The recommendation comes in a report by the committee into the failure of HBOS, which merged with Lloyds Banking Group in a state-brokered takeover amid the financial crisis.

The proposal echoes similar suggestions dismissed by former Chancellor George Osborne when he split the Financial Services Authority into the PRA and the FCA in 2013.

“The HBOS experience calls for the FCA and the PRA to exhibit greater vigilance and energy if they are to win public confidence,”  Andrew Tyrie, the select committee chairman said. “This has on occasion been lacking.”

A separate body to penalise recklessness and wrongdoing would serve to “bolster the perception” of the independence of enforcers in Britain’s regulatory system, according to the report.

The current system, in which the FCA and PRA supervise banks, while also applying and prosecuting the law is “outdated and can be construed as unfair,” the report said.

This isn’t the first time Mr Tyrie has pushed for a separate enforcement body. He made the case as a member of the UK’s Parliamentary Commission on Banking Standards in 2013 and reiterated the call in 2014.

He said on Tuesday that the Treasury should now “re-examine” the proposal and appoint an independent person to oversee a review.

Various reports into the failures at HBOS have been published since it merged with Lloyds with the combined company requiring a taxpayer bailout of more than £20 billion in one of the most controversial episodes of the  financial crisis.

The FSA faced criticism after it sanctioned only one former HBOS executive, former head of corporate banking, Peter Cummings, and took seven years to publish a report into failures at the bank.

 

RBS’s £1,100 bill for every household

Bank’s share price crash leaves taxpayers nursing £29bn loss

RBS is still 73% government-owned, and a sale of the stake is now further away

July 10 2016, 12:01am, The Sunday Times

Households are sitting on paper losses of £1,100 each after the post-referendum plunge in Royal Bank of Scotland’s share price.

The value of Britain’s biggest lenders has sunk since last month’s vote to leave the European Union.

Uncertainty over the future of Britain’s trading relationships with other EU countries has led economists to slash their growth forecasts, with bank stock diving in response.

RBS is down nearly 40% since June 23 and closed on Friday at 168.8p, a third of the 502p that Gordon Brown paid to rescue the bank during the financial crisis.

The taxpayer is now sitting on a loss of £29bn — equivalent to nearly £1,100 for every household across the UK.

The mammoth shortfall underlines the scale of the task facing RBS boss Ross McEwan, who is battling to recover the state’s investment in the Edinburgh-based lender. It is home to NatWest and Coutts.

He warned recently that Britain’s decision to leave the EU would delay a sale of the government’s remaining 73% stake by a further two years.

“This will be a setback, let’s be honest,” the New Zealander said. McEwan added that the bank had been “knocked around by interest rates being lower for longer, therefore investors are saying, well, your returns aren’t going to be so good”.

With the Bank of England tipped to cut interest rates to a new low this week, investors are increasingly concerned about the profitability of banks. If borrowing costs go lower, lenders make less money from offering credit to businesses and consumers. The scale of the potential slide in profit margins was brought home to George Osborne during a private meeting with City bosses last week.

They warned the chancellor that earnings were likely to come under severe pressure in coming months.

The first effects of the Brexit vote will become clear when the biggest lenders publish first-half results this month.

Banks are likely to shed jobs as the economy slows, the executives told Osborne.

The government injected £45.8bn into RBS in 2008 and provided hundreds of billions in emergency loans to keep the business afloat.

The chancellor sold a £2bn chunk of the taxpayer’s shares at a loss in August.

RBS and Lloyds, which was also rescued with a state bailout, are regarded as heavily exposed to commercial property, a key area of concern for investors. RBS has £25.2bn of lending to the sector, while Lloyds has £18.1bn, according to JP Morgan. The banking industry as a whole has £86bn of commercial property lending.

RBS chiefs may face fraud trial over seizure of IT firm

June 12 2016, 12:01am, The Sunday Times

Neil Mitchell, who is trying to mount a private criminal prosecution against RBS executives, with girlfriend Sarah Morgan yesterday FRANCESCO GUIDICINI

Senior executives at the Royal Bank of Scotland are facing the threat of a private criminal prosecution brought by the former boss of a software firm who claims the bank orchestrated the unlawful seizure of the company and sold it for barely half of its true value.The bank denies any wrongdoing

In documents filed in related civil proceedings, Neil Mitchell, the former chief executive of Torex Retail, alleges that Global Restructuring Group (GRG), a unit within RBS, “conspired by unlawful means” with Cerberus, a private equity fund in America, to engineer the sale of Torex for a cut-price £204m.

“RBS colluded with Cerberus to sell the entirety of Torex’s business at an undervalue . . . and irrespective of the fact Torex’s business was viable,” the documents claim.

The sale of Torex in June 2007 came months before the financial crash that led to a £45bn bailout of RBS by the government. The taxpayer still has a 73% stake in the bank.

Mitchell believes that RBS wanted to sell Torex quickly to recoup £190m in loans made by a syndicate of banks that it led.

The documents allege that a rival bid for Torex, worth up to £390m, was made but that RBS had already hatched a plot with Cerberus to sell it for a sum close to the £190m debt. Cerberus eventually bought Torex for £204.4m.

Allegations against RBS in Mitchell’s civil claim include negligence, a breach of its fiduciary duty, breach of trust and unjust enrichment.

RBS vigorously denies Mitchell’s claims, which it says are ‘entirely without merit’ CARL COURT

This weekend, RBS vigorously denied Mitchell’s claims, which it described as “entirely without merit”. It said the claims “will be met by a full defence”. RBS has denied that there was another viable bidder for Torex at the time of its sale. Cerberus, whose chairman is Dan Quayle, the former US vice-president, declined to comment although it is understood that it, too, denies all the allegations.

Mitchell is also suing KPMG, the accountancy company that acted as administrators for Torex before the sale. He accuses KPMG of breach of trust and dishonest assistance, which it denies. It has applied to have the case struck out.

As well as lodging his civil claim, Mitchell has hired lawyers to pursue a private prosecution against RBS executives. Writing on his behalf in a letter to Ross McEwan, the current RBS chief executive, one of the law firms claims to have “evidence to suggest that there has been collusion between RBS . . . Cerberus and others to defraud the shareholders of Torex and thereafter to conceal the commission of any offences.” It is understood that RBS denies any criminal wrongdoing.

Mitchell, 53, is being provided with free legal advice by Charlie Monteith, a former head of the proceeds of crime division at the Serious Fraud Office (SFO).

The litigation risks reigniting the controversy over RBS’s GRG unit. In 2013, The Sunday Times revealed that a report by Lawrence Tomlinson, a government adviser, had concluded that “heavy-handed, profiteering and abhorrent behaviour” by RBS had caused “detrimental consequences for otherwise good and viable businesses”.

A subsequent report commissioned by RBS cleared the bank of “systematic fraud” but listed other failings. An investigation into GRG by the Financial Conduct Authority regulator is continuing.

The Torex saga began in November 2006 when Mitchell became chief executive of the company, which supplied touchscreen technology to clients including McDonald’s and Argos. Before he joined, Torex had secured a £190m RBS loan and embarked on a spending spree on other companies.

At that point Torex was valued at £600m but within weeks of joining, Mitchell found evidence of fraud and alerted RBS, the SFO and the police. Shares in Torex, which employed 2,500 people, were suspended and RBS transferred the firm into its GRG division.

Three days after going to the SFO, Mitchell was suspended by Torex. He was later sacked.

Mitchell’s decision to blow the whistle — which subsequently led to the conviction of five Torex executives — was judged so sensitive that he was placed under police protection in a central London hotel.

It is claimed in legal papers that Mitchell and Phil Cox, a Torex colleague, met a representative from Cerberus in the hotel bar and were told that the US fund had “already entered into a deal with RBS” that would guarantee them the “assets of Torex once RBS had ‘taken control’ of the company”. This is denied by Cerberus and RBS.

Torex was placed into administration and sold in June 2007. Mitchell alleges that, while RBS and the other banks recouped their loans, shareholders, including himself, and other creditors were left with a “valueless shell”.

In his submission to the High Court, he also says his claim for unfair dismissal, which he believes is worth up to £25m because of legal protection for whistleblowers, was stymied by the sale of Torex.

Mitchell, who set up the RBS GRG Action Group in 2014, is the first major claimant against the unit to go public.

He is being supported by Cox, who had worked for RBS before joining Torex. In 2012, Cox wrote to Stephen Hester, then chief executive of RBS, advising the bank to settle Mitchell’s claim. “The facts of the case are not at all pretty,” he wrote.

Critics have labelled Mitchell as an “obsessive”. He says he has spent almost £4m of his own money pursuing his claim. “This has been a nine-year campaign,” he told The Sunday Times. “It is now for the courts to decide the outcome.”

Mitchell’s efforts have been dealt several blows. Two years ago he ran out of money but has now raised funds to hire law firms including Berg and Mishcon de Reya.

He was also criticised by a High Court judge in 2014 when he tried to prevent Torex from being dissolved. After he had repeatedly failed to produce evidence, Mr Justice Peter Smith told him: “You issued an application making strong allegations against professional people and then, when push comes to shove and you have to show your cards, you do not show them.”

Mitchell said he had not wanted to disclose his evidence until the current civil and criminal action was launched.

An RBS source said Mitchell had met Sir Philip Hampton, a former chairman of the bank, McEwan and legal staff to discuss his grievances but had “repeatedly refused to hand over the dossier of additional evidence”.

KPMG said: “We strongly refute the allegation that KPMG or its members have acted improperly . . . The courts have previously dismissed similar allegations and we have applied to have the current proceedings struck out.”

LEXLAW Case Study: RBS pay £1m to settle derivatives mis-selling claim with social care provider

Posted on: July 2, 2016

The Royal Bank of Scotland PLC (RBS.L) has been forced to settle a High Court claim [1] over the mis-selling of two complex collar derivatives [2] in 2007 to Mehnaaz Chaudhry, a businesswoman who provides residential care and social support services to disadvantaged children and families in London.

RBS denied any liability in spite of agreeing to suffer a total financial cost in excess of one million pounds in the settlement, which includes repaying 92% of Ms Chaudhry’s direct losses.

RBS GRG Review Litigation Lawyers London UK Review

Under the litigation settlement, which comes just before the High Court trial (which was scheduled to start on 13th June 2016), RBS has agreed (i) to return nearly £600,000 in respect of derivatives payments previously paid by the customer plus interest, (ii) to pay the break cost of the two hedging products estimated at up to£300,000, and (iii) to pay all suspended payments in respect of the two hedging products estimated in the sum of around £100,000.  The litigation settlement has cost RBS around one million pounds.

Good litigation cases settle

Usually, such settlements contain confidentiality clauses and the details cannot be placed in the public domain.  On this occasion, however, the customer settled the litigation without confidentiality in order to expose RBS’s misconduct and the flaws of the Financial Conduct Authority agreed IRHP review scheme [3] to the wider public.  In the review scheme, RBS was allowed to self-review and self-determine redress in respect of its own past sales of derivatives with minimal regulatory oversight save under the auspices of a so-called ‘independent reviewer’, in this case, KPMG, whom RBS selected and appointed.  This voluntary arrangement was agreed by the regulator in spite of the FCA publishing a finding of mis-selling in 93% of IRHP sales examined in a pilot review scheme.

Abuse of the IRHP Review scheme

Unfortunately, some banks, RBS in particular, avoided paying proper redress by unfairly applying the rules of the review scheme (which they helped create) to reduce redress paid to customers.  RBS regularly replaced derivatives mis-sold to customers with alternative hypothetical derivatives that simply do not exist in the real world, for example in this case 15-year caps.  These unfair alternative derivatives effectively allowed RBS to unfairly reduce redress payable to customers.

It is likely that RBS has avoided more redress payments by way of alternative derivatives than any other bank.  Hundreds of business customers, whose legal rights may have expired for want of litigation (as they trusted the regulatory review scheme) and whose appeal to the Financial Ombudsman Service is limited to £150,000, have been left with little choice but to accept poor redress offers from RBS. Such customers should take legal advice.

Lessons for the FCA

John Griffith-Jones, the Chairman of the FCA, has indicated to a parliamentary Treasury Committee that Andrew Bailey, the soon-to-appointed Chief Executive of the regulator, will review how the FCA deals with redress schemes after he takes up the role in July 2016. It is understood that Mr Bailey will work with the regulator’s board to draw upon its experience of dealing with issues including mis-sold payment protection insurance and interest rate swaps and will also question how the FCA should operate redress programmes in future.  Mr Griffith-Jones said:

“One of the crucial things Andrew Bailey and the board will look at when he arrives is how we deal with these redresses. How do we get a scheme to begin and end to the satisfaction of everybody that we’re doing a decent job? If you look at PPI or swaps, or other difficult cases, it’s still a work in progress. It’s very easy to start these things, but it seems very difficult to finish them.”

Litigating ensures proper redress

This case is highly relevant to how the IRHP review has been unfairly operated by RBS. The High Court litigation ran in parallel with the IRHP review scheme, which was considered to amount to alternative negotiations leading to settlement.  Whilst denying all wrongdoing in the litigation, RBS admitted in the review that it had failed to properly explain the huge risks of the derivatives products that it had offered. However, rather than provide fair compensation to the customer for its mis-selling, which had cost the customer almost £400,000 in derivatives payments (together with around £350,000 breakage cost exposure), RBS instead only offered redress with a total financial value of around £300,000 by insisting on replacing the two mis-sold collars with one further costly collar and a costly 15-year cap.  This unreasonable decision by RBS was challenged by way of explanatory meetings and written submissions in the Review and by simultaneous pursuit of High Court litigation.  On the eve of trial, this forced RBS to drop its demands for replacement collars and offer replacement caps, which massively increased the total financial value of its redress offer to around £1m.

RBS – a reputation for behaving badly

RBS has thereby demonstrated its ongoing unwillingness to genuinely put right its past wrongs by forcing its clients to pursue litigation and waiting until the eve of trial to settle such litigation. This is entirely unnecessary and reveals RBS’s vindictive and bullying approach towards its IRHP mis-selling victims.

Ms Chaudhry, the customer whose ability to perform her leading social care services work in London was restricted by RBS’s mis-selling of these complex derivatives products, stated:

“I was mis-sold two collars by RBS that caused massive unexpected financial losses which affected my ability to provide additional social care support in East London. I have battled with RBS for over six years and finally, on the eve of trial, and after having been ordered to hand over its IRHP review documents, RBS made their first and only litigation offer. ”

“RBS was ordered by the High Court to disclose its IRHP review documents in my case which revealed admissions of wrongdoing that undermined RBS’s three year defence of this litigation. Whilst I am relieved that my six-year dispute with RBS is at an end I feel aggrieved that RBS behaved as badly as it did, first in mis-selling and then in the FCA IRHP review and finally in bullying me to the door of the court to test my resolve. I understand this is because many customer eventually give up or settle for low amounts.”

“When first taking on my business, the RBS commercial team were courteous, flexible and helpful however once they got my business and tied me into the collars, RBS were not interested in the negative impact on my business and have been arrogant and dismissive of me ever since. RBS ought to treat their customers with more honesty, respect and fairness.”

Mr Kumaran Sivathillainathan, a solicitor practising at LEXLAW Solicitors & Barristers, the City of London law firm that represented Ms Chaudhry, stated:

“The litigation was vigorously defended by RBS, but just weeks before the trial, RBS was forced to settle the litigation claim in order to avoid judicial scrutiny and judgment over both its mis-selling and its conduct of the IRHP Review scheme.”

“This case is the first in which RBS were ordered, upon application by the Claimant, to hand over all documents generated in the IRHP review scheme. In spite of the clear civil procedure rules on disclosure, RBS had wrongly refused to disclose IRHP Review documents until they were forced to do so by an order of the High Court.”

“RBS defended the disclosure application with much vigour, even appointing heavyweight banking silk, Adrian Beltrami QC to strengthen their legal team [4]. However in spite of the bank’s protestations, the Chief Master of the Chancery Division of the High Court ordered RBS’s solicitors, Dentons, to redo RBS’s disclosure exercise and ultimately to disclose the review scheme documents.”

Leading derivatives expert, Mr Abhishek Sachdev, of FCA -authorised financial risk management consultancy Vedanta Hedging stated:

“The customer did not fully understand the Collars and therefore RBS should not have sold them.   RBS failed to fully explain the risks associated with the Collars, in particular break costs.  Had the customer fully understood the complexity and risks of the Collars, she would not have entered into them and would have chosen alternative hedges. The Collars were over-priced at inception by between 149% and 169% whereas the customer could have had more effective hedges at a fraction of the cost.”

“The FCA-agreed IRHP review scheme has failed to ensure customers get fair redress and instead has significantly reduced the cost of compensation that is truly owed by banks to victims.” 

Notes:

  • RBS sales staff were incentivised to sell complex collars to benefit the bank rather than hedging to benefit the customer. RBS made £79,968 profit by mis-selling the complex derivatives.
  • RBS deliberately concealed and failed to disclose the contingent liabilities (estimated break costs risk) of £276,000, even though they had calculated the break costs risk and used up the customer’s credit limit to that extent under an RBS process called ‘Credit Limit Utilisation’ which, unlike all other credit applications, was concealed from the customer.
  • This litigation has cost RBS well over one million pounds (including around £130,000 in legal costs). RBS could have settled the matter much sooner but purposely chose not to and instead conducted their review slowly and their response to litigation arrogantly, for example by refusing to disclose documents despite their duty to the Court to do so.
  • The FCA allows banks to review their own past sales of derivatives and decide the level of redress to pay; RBS attempted to get away with paying only £300,000 but were forced to pay out over three times that amount thanks to the pressure of the litigation which was run in parallel with the review scheme.
  • RBS tried to reduce compensation by demanding the customer takes out replacement derivatives that she did not want. RBS initially demanded a replacement collar and a 15-year cap in the review which would cost the customer an additional £238,476 plus lost interest (at 8% per annum) which was an attempt to avoid compensation by RBS.
  • 15-year caps are an invention of the RBS review scheme; there are no commercially known examples of any SMEs ever purchasing longer than approximately 5-7 year caps. Guto Bebb MP has openly challenged RBS over this compensation avoidance technique in the past.
  • FCA’s new Chief Executive, Andrew Bailey, will be examining the conduct of past voluntary review schemes to consider if Banks give customers fair redress.
  • NatWest/RBS and the FCA are likely to announce an FCA-agreed GRG Review scheme for victims of NatWest/RBS’s Global Restructuring Group which is alleged to have engineered loan defaults to deprive customers of valuable assets, for example by stripping those assets into West Register companies that the banks own.

Contact details:

Vedanta Hedging is the largest FCA-regulated hedging advisory organisation in the UK for SMEs and has advised hundreds of clients in connection with the mis-selling of derivatives in both the FCA-backed IRHP review scheme and in litigation by providing expert witnesses. The Managing Director, Mr Abhishek Sachdev, can be contacted by telephone on 020 7183 2277.

LEXLAW Solicitors & Barristers is a unique law firm that partners solicitors and barristers and is the only law firm based in the Middle Temple (an Inn of Court). The firm has conducted more litigation in respect of derivatives mis-selling to SMEs than all other law firms in the UK combined. The partner in this case, Mr M. Ali Akram, can be contacted by telephone on 020 7183 0529.

Mehnaaz Chaudhry is a provider of social support services to children and families in London. She has a BA (Hons) in Social Work, a Post-Qualifying Social Work Award and an Award for Academic Excellence in Social Work. Ms Chaudhry can be contacted for further comment via her solicitor, Mr Kumaran Sivathillainathan by telephone on 0207 183 0529.

Footnotes:

[1] Mehnaaz Chaudhry & Another v. The Royal Bank of Scotland PLC (High Court of Justice, Chancery Division, Claim No: HC-2013-000489); proceedings were commenced on 17 October 2013.
[2] The derivatives were: (i) a £1.58m Amortising 15-year Collar sold on 3 December 2007; and (ii) a £0.62m Amortising 15-year Collar sold on 3 December 2007.
[3] See letter to the FCA dated 10 October 2013 titled Notice of Failings in and Abuses of the IRHP Review.
[4] RBS instructed Matthew Arnold Baldwin (now Dentons) partner, Mr Stephen Mills and associate, Mr Samuel Parr. Adrian Beltrami QC of 3 Verulam Buildings and Daniel Edmonds of Fountain Court were counsel.

How trustworthy is your bank?

The Guardian Rupert Jones Saturday 2nd Feb 2008

Case study: Paul Walton

Paul Walton uncovered a catalogue of errors. Photographer: Christian Sinibaldi

Phantom loans, ‘recreating’ paperwork, bringing dozens of lost documents back to life … Rupert Jones talks to one customer who believes the system has failed him

Can you trust the records and paperwork that your bank keeps on you? You may be a little less happy to accept its version of events once you have read about Paul Walton, who was on the receiving end of what Royal Bank of Scotland admits was “a series of unfortunate errors”.

His saga involves phantom loans, and lifts the lid on a little-known practice that allows banks to recreate documents they have lost.

Walton turned detective after being told by RBS that the amount he owed on his personal loan was much greater than he thought. He asked for a copy of his original loan agreement, but when he received it he knew at once that it wasn’t the genuine article. He eventually found his original carbon copy, which confirmed his suspicions.

Surely one of Britain’s biggest banks isn’t forging documents? Of course not – but it is controversially “recreating” them.

During his investigations, the father-of-three managed to get hold of an internal RBS memo, which reveals that at some point last year the bank introduced procedures allowing staff to “recreate” loan agreements that it had mislaid. It did this because it was fed-up with the fact that some customers were getting their debts written off because staff could not find the paperwork. The memo boasts that RBS has brought dozens of lost documents back to life, and calls the practice “a classic example of thinking under pressure and adding real value to the bottom line”.

Recreating documents is not against the law; banks are allowed to supply replacements if the original paperwork has gone missing, provided they are “correct in all particulars”. But some might say that when bank staff are “under pressure,” to quote from that memo, mistakes creep in. In Walton’s case, it was a string of errors.

His MP, John Healey, the local government minister, said in a letter written to RBS last summer that he was “very concerned” about the bank’s conduct, adding: “It may be the case that the bank’s actions are not just unfair, but illegal.” But the bank strongly refutes any suggestion of wrongdoing.

To fully understand what happened, we need to go back to April 1998, when Walton, 41, who lives in Rotherham, South Yorks, took out a £9,700 personal loan with RBS to consolidate an overdraft and an earlier loan. He soon found he could not afford the £212 monthly payments.

The case went to the county court later that year, and the bank obtained a judgment against Walton. He was ordered to pay £38 a month to settle the debt, and has dutifully paid that amount since then.

In 2006, he asked for details of how much was still outstanding, and says he was shocked when he was told the amount owed on the loan was around £20,000. He made an official request for all the paperwork relating to his loan account. The documentation he eventually received seemed to indicate that his personal loan and overdraft had been turned into “capital and interest variable rate loans” (whatever they are).

This seemingly happened in 1998 without Walton’s consent. He knew at once that the credit agreement relating to these loans was not the original. “But how could I prove it? [At this point] I’m thinking the house is going to be repossessed.”

He decided to search his loft, and there he found his own carbon copy. But it bore little resemblance to the document he was sent. The dates are different, as are the details of the payments and the interest rate, which is higher on the document he was sent.

The paperwork showed that the amount outstanding on the loan, which stood at about £13,000 in late 1998, had grown to £20,000 by March 2007. The overdraft account, which was £369 in 1998, was in credit to the tune of more than £3,000 last year.

Walton’s feeling that something was amiss was fuelled by his discovery – via a contact – of the internal memo.

Under current legislation, banks must, if requested by a customer, provide them with a “true copy” of their credit agreement within a certain period, otherwise the bank may have difficulty enforcing it. But the Office of Fair Trading says a bank “may supply a ‘reconstruction’, only in the sense that it is providing exactly the same information as appeared on the original agreement”. Clearly that didn’t happen.

In a letter sent to the bank in November, Walton’s MP said he remained concerned, adding: “Is it RBS’s normal business practice to create and change accounts … without informing a customer or seeking their agreement?”

So, what happened? The bank says it is a cock-up rather than conspiracy – Walton was sent the wrong paperwork, and those two capital and interest loans have never existed. “Though very regrettable, this whole matter has come about due to a series of unfortunate errors … which have obviously caused the customer some inconvenience but have not disadvantaged him financially, as the county court judgment superseded everything else and has governed what Mr Walton owes the bank since 1998”. The bank has already awarded him £500 compensation.

A spokesman says it was never its intention to give the impression that the “true copy” supplied to Walton was a copy of the original documentation. “Regrettably, in this instance, the first ‘true copy’ sent to Mr Walton was incorrect because the data we used was taken from our recoveries department, where the accounts had been sent when they went into default … This is why Mr Walton received details of two capital and interest variable rate loans which didn’t exist, and for that we have apologised, explained the situation and told him to ignore them.”

The second “true copy” the bank prepared was correct, says the spokesman. [Guardian Money has seen a copy and it is almost, but not completely, identical to Walton’s own copy]. “Once the CCJ was enforced, that became his credit agreement with us, and so we were no longer legally obliged to provide a ‘true copy’ of the original agreement,” he adds.

Walton’s accounts “remain open for book-keeping purposes only. With the CCJ in place, they no longer have any significance to the debt being recovered … but are simply a vehicle for receiving his £38 monthly payment … regrettably, Mr Walton was sent statements on these accounts, which should not have been done.

“The statements show interest still being applied to the accounts, which is done for our own internal accounting and is normal practice … but this is not owed by Mr Walton.”

As to the memo, the bank says: “We strongly refute any suggestion of wrongdoing – we are fully compliant with both the regulation and legislation.”

The internal memo that was passed to us

“On occasion the Consumer Credit Agreement cannot be found quickly and in the past this led to the debt being written off. On identifying this problem Jane Fraser introduced a new process whereby if the CCA cannot be found quickly Jane is able to create a ‘true copy’ using the data keyed at the time the loan was granted and the ‘style’ of agreement used at that time – this can go back a number of years. 65 agreements have been recreated so far involving circa £250k of debt – a classic example of thinking under pressure and adding real value to the bottom line.”

r.jones@theguardian.com

 

A lawyer spotted a big mistake made by Britain’s financial regulator when handling sensitive info from businesses

Business Insider UK

By Lianna Brinded Jun. 2, 2016, 10:35 AM

Whistle

Britain’s financial regulator made two huge oversights when it came to treating sensitive information from the SME Alliance, a small not-for-profit group that aims to help small to medium enterprises with problems they may have with their banks, says prominent London lawyer.

Chris Finney, Partner in Cooley LLP’s London office told Business Insider in an interview that the way in which the Financial Conduct Authority passed on sensitive information from SME Alliance members to the banks, which were subject to their complaints, may deter people from reporting potential wrongdoing in the banks because they would not be protected.

This is because the FCA didn’t ask the SME Alliance’s permission, nor did it warn them of what it was doing.

Over the last few years, the SME Alliance has been communicating with regulators, authorities and relevant organisations on the collective issues of its members, such as misselling financial products. Its main goal is not to deal with individual cases but instead to present the regulator with a raft of cases to demonstrate some of the issues a number of members are collectively experiencing.

However in January this year, the SME Alliance wrote to the chairman of the Treasury Select Committee Andrew Tyrie “to express concerns that the FCA had betrayed the confidence of whistleblowers by passing on sensitive information to the subject of their complaints, the high street banks.”

Subsequently, this led to Tyrie writing to the FCA’s acting-CEO Tracey McDermott in February, to respond “to claims made by the SME Alliance that its representatives have been ‘badly compromised’ by the passing on of sensitive information to the banks,” as well as to enquire about what progress the FCA has made to encourage a “significant shift in cultural attitudes towards whistleblowing.”

McDermott responded and said the FCA didn’t treat the SME Alliance as whistleblowers.

Tyrie then later wrote back to the FCA in late May to ask for “further clarity about what measures it is putting in place to improve its treatment of whistleblowers, following concerns raised by the SME Alliance.” The FCA has yet to respond to that letter.

The FCA told Business Insider “we don’t have any further comment to make than what Tracey said in her letter to Andrew Tyrie on March 10.

So Business Insider spoke to Finney, who leads Cooley’s London financial services and financial technology regulatory practices,to see what potential repercussions this has on the industry.

chrisfinney1

CooleyChris Finney, Partner in Cooley LLP’s London office.

Business Insider: So what did the communications between the Treasury Select Committee and the FCA regarding the FCA’s apparent failure to treat members of the SME Alliance as whistleblowers in accordance with its own policies truly show?

Chris Finney: That the FCA’s fallible. It was careful and thoughtful enough, and it had the decency, to ask for permission to disclose information and documents to the police and it was absolutely right to do so.

But it didn’t think to ask for permission to disclose the information and documents to the banks and it didn’t think to warn the SME Alliance that it had done so.

And these oversights might well have caused harm to the Alliance and its members. They’re also likely to have caused harm to the FCA – from a reputational point of view, and because other whistleblowers might now be deterred from whistleblowing.

That doesn’t necessarily mean the FCA acted unlawfully – although that is possible, notwithstanding the fact that the FCA did seem to have the power to disclose the information and documents to the banks and to the police as well.

The result? — Anyone else who’s thinking about blowing the whistle, should take pro-active steps to protect themselves from these risks in other cases.

BI: Were the allegations founded? What kind of evidence?

CF: There’s no way of telling whether the SME Alliance’s allegations against the banks were well-founded – and at least one of the banks denies the allegations against it.

The SME Alliance’s allegations that the FCA disclosed information and documents to the banks certainly appear to be true – at least in part – and the FCA has admitted as much. (In her letter to Tyrie of 10 March 2016, McDermott says “we did disclose limited information to the banks in question, and did not treat the SMR [sic] Alliance as whistleblowers ”).

tracey mcdermott

Tracey McDermott, acting CEO at the FCA.

BI: What was the response and has there been any repercussions over the businesses making these public, so to say?

CF: We don’t know. The SME Alliance alleges that it and its members have been prejudiced by the FCA disclosing the information and documents to the banks.

It might well be the case that the SME Alliance’s members will now be more reticent about disclosing information and documents to the SME Alliance; and, even if that’s not the case, the SME Alliance is likely to find it harder to meet its objectives, if it feels bruised and undermined by the results of its communications with the FCA.

BI: Has the FCA acted on it and if not, why?

CF: Andrew Tyrie has written to the FCA to ask it how it decides whether an informant is treated as a whistleblower, whether they are told clearly of this decision, and what assurance [it] can give to those who are so treated that their involvement will remain confidential.

His letter was sent on May 13, so the FCA’s reply may be this month. It will be interesting to see how the FCA responds.

Although it might fall back on its narrow legal obligations – arguing, perhaps, that it makes its decisions, and meets its obligations, in accordance with the law; it seems more likely that it will repeat its earlier assertions that (because whistleblowing is a good and positive thing from society’s point of view, and especially from a regulator’s point of view) it does everything it reasonably can to treat people as whistleblowers, and to protect their identity, whether the law requires this, or not.

I anticipate that we will also see more training for FCA staff, and improvements to internal FCA procedures, so that the FCA and whistleblowers are more likely to have these discussions up front; and the FCA is more likely to record and act in accordance with the whistleblowers preference for anonymity, whenever and however it reasonably can.

BI: What does this mean for businesses reporting this form of alleged wrongdoing from banks? Are they protected?

CF: Whistleblowers are given some protection by the law. But this case shows how easily that protection can be lost.

Although I think the FCA was wrong to impliedly blame the SME Alliance for its own misfortunes f(“the SME Alliance did not present themselves to us as proving this information in confidence”) whistleblowers probably need to be more pro-active in future, if they want to protect their anonymity.

This could be done, for example, by asking to be treated as a whistleblower (rather than assuming – however reasonably) that this is what will happen and marking every document you give to the FCA as confidential, and not to be shared with or copied to anyone outside the FCA without the express written permission of the person who provided the document and the person whose information it contains.

This will not be fail-safe — there is still a risk of leaks, and the FCA may be obliged to disclose regardless – but at least the risk of disclosure will be reduced to the greatest extent reasonably possible. And misunderstanding of the SME Alliance / FCA type (if that’s what it was) will not recur.

Whistleblowers ‘at risk of betrayal’ by City watchdog

Top MP demands regulator protects informants

The FCA had already been warned about its treatment of whistleblower by the parliamentary commission on banking standards in 2013

The Times 

May 14 2016, 12:01am

The chairman of the Treasury select committee has warned the Financial Conduct Authority that it risks “neglecting the reasonable needs of whistleblowers” after allegations that the City regulator betrayed the confidence of informants.

Andrew Tyrie wrote to Tracey McDermott, acting chief executive of the authority, yesterday demanding assurances on how the regulator treated sensitive information given to it by a body representing small businesses.

The SME Alliance has accused the authority of passing on evidence that it presented to the regulator in confidence to the high street banks that were the subject of the companies’ complaints. This was first reported in The Times in January.

After the intervention of the committee, the authority admitted that it had passed “limited information” from the whistleblowers to the banks in question. Mr Tyrie said the regulator’s treatment of the group appeared to contradict its own policies, which are based on the assumption that “whistleblowers almost always want their information and identity to be protected”.

The alliance met senior staff at the authority last year and presented cases which it claimed highlighted evidence that banks had edited records of customers’ emails, call transcripts and how they presented their records in order to flatter their positions when in dispute with customers. It complained to Mr Tyrie in January, claiming that some customers had been “badly compromised” by the authority sharing the information with banks.
Concerns were raised when Ross McEwan, chief executive of Royal Bank of Scotland, one of the banks that was subject to the allegations, said in a radio interview in November that he had “looked through these files”.

The authority said it had decided not to treat the alliance as a whistleblower so was entitled to pass on information without the permission or knowledge of the complainants. It said the alliance had failed to make clear it was “providing this information in confidence”.

However, Mr Tyrie said the authority “appears still not to have grasped what’s needed to create an appropriate environment” for whistleblowers, despite receiving censure on the issue in 2013 from the parliamentary commission on banking standards.

The commission, which Mr Tyrie chaired, said three years ago that the “FCA appeared to show little appreciation of the personal dilemmas that whistleblowers may face”.

Yesterday, Mr Tyrie demanded “further assurances that the SME Alliance was treated reasonably”.

Nikki Turner, co-founder of the alliance, said that the group had presented a number of cases as examples of the alleged record tampering it believed was occurring to highlight its belief that there was a wider problem, and said that it did not ask or want the regulator to look into individual cases.

“It’s worrying the FCA were, on the one hand, sufficiently aware of the sensitivity and seriousness of the confidential information we gave them to ask our permission to share it with the police, but felt they needed no such authorisation regarding the banks,” she said.

The authority said it was satisfied that the steps it had taken were necessary and appropriate to assess the “serious allegations being raised”. It added that it did not believe that it had breached its own procedures.

The alliance said that it would urge the Treasury select committee to investigate the authority’s interpretation of the section of the law covering information sharing.

The regulator has said that “based on the work we have carried out, we have found no evidence that the banks have deliberately falsified or altered customer records”.

Top bankers face jail under tough new regime

The Times Aimee Donnellan Published: 6 March 2016

Crackdown: bankers found guilty of reckless misconduct will face jail sentences of up to seven years

Crackdown: bankers found guilty of reckless misconduct will face jail sentences of up to seven years (Andrea Baldo/Getty Images)

TOUGH new rules to punish rogue bankers will come into force tomorrow.

Senior bankers found guilty of reckless misconduct will face jail sentences of up to seven years, and banks will have to appoint senior managers to “whistleblowing” roles to make it easier for staff to expose potentially illegal behaviour.

The rules are a response to public anger over scandals in the financial industry. They are intended to hold the highest earners in banks and insurers to account for serious failures.

Banks have already begun preparing for the enforcement of the Senior Managers Regime by clarifying areas of responsibility.

One of the criticisms of the previous system was that it was difficult to bring senior executives to book when more junior staff broke the rules.

An estimated 15,000 City workers — including chief executives, chairmen, board members and key “risk takers” — are on a list of accountable senior managers drawn up by the Bank of England and the Financial Conduct Authority.

“These [rules] will be used to pin blame on individuals where an issue occurs in their area of responsibility,” said Adrian Crawford, a partner at London law firm Kingsley Napley. “More senior managers might have been held to account for Libor, for example, if the regime had existed then.”

During their investigations into recent City scandals, regulators have struggled to bring action against senior bankers.

However, there are concerns that the threat of prison is stifling the City. “We have heard anecdotally that some banks now have a lawyer present at every meeting. As a result, decision-making is becoming increasingly bureaucratic,” said Crawford.

The rules follow recommendations made by the parliamentary commission on banking standards, which was established to improve the culture and conduct of the industry.

Bankers fought against the introduction of a criminal component in the regime. It was one of the factors HSBC took into account during its recent deliberations on whether to move its headquarters out of Britain.