British Regulator Shuts Door on RBS Business Loan Scandal

(Bloomberg) -- The U.K. won’t take action against Royal Bank of Scotland Group Plc over failings in its small-business lending unit because the law doesn’t allow the agency to act.

The Financial Conduct Authority found no evidence that senior management “acted dishonestly or with a lack of integrity” between 2008 and 2013 in connection with RBS’s Global Restructuring Group, according to its final report, which was published on Thursday. A key challenge was the “absence of regulatory rules against which the performance of senior management could be measured,” the 77-page report said.

“Because most of GRG’s activities were outside our jurisdiction, we are not able to impose a financial penalty on RBS or any senior management,” the FCA said. “While those directly affected might think the conduct of senior management was deficient in GRG, we do not believe we would have reasonable prospects of bringing successful prohibition proceedings against any member of senior management.”

The FCA’s handling of the scandal has drawn political criticism. Kevin Hollinrake, a member of parliament, called the watchdog’s report “another complete whitewash and another demonstrable failure of the regulator to perform its role.” The FCA must publish a full account of its findings, he said.

“This long overdue report will offer no solace to those who suffered from the disgraceful actions of RBS’s GRG,” said Nicky Morgan, who chairs parliament’s Treasury Select Committee. “The committee continues to take an interest in the progress of the complaints process and urges RBS to ensure that the remaining complaints are dealt with swiftly and fairly.”

RBS Chairman Howard Davies said the bank welcomed the end of the investigation. The lender will continue to “focus on putting things right for these customers through our complaints process,” he said in a statement.

An independent report in 2013 first documented widespread malpractice by RBS and GRG in how they treated their business customers, finding “inappropriate treatment” in 86% of cases it examined.

GRG, set up to support struggling companies but criticized for prioritizing repayments over repairing the businesses, expanded its loan portfolio in the wake of the financial crisis to 65 billion pounds ($82 billion).

RBS, Executives Escape Regulatory Penalties Over GRG Scandal

“The financial crisis saw a significant increase in the number of customers referred to GRG,” the FCA said. “Despite this, the changes to the systems and controls did not keep pace with what was needed in light of that increase and there is clearly evidence of poor behavior within GRG.”

To contact the reporter on this story: Franz Wild in London at fwild@bloomberg.net

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Marion Dakers, Ross Larsen

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