RBS’s Global Restructuring Group – the “internal profit centre”

The Royal Bank of Scotland (“RBS”) has been subjected to a number of well-publicised and serious allegations over the last two years in relation to the conduct of its Global Restructuring Group (“GRG”).

The Allegations and the Tomlinson Report

The allegations led to the publishing of a detailed report by Dr Lawrence Tomlinson in November 2013, entitled “Banks’ Lending Practices: Treatment of Businesses in Distress”. Essentially, the report alleges that RBS used its GRG division in order to generate revenue from customers in financial distress by charging increased fees, margins and by devaluing assets. Further, more specific allegations raised in the report include:

• Minor breaches of loan covenants being relied upon by RBS in order to force a transfer of customers’ businesses into the Bank’s GRG;
• The undervaluing of customers’ property resulting in a breach of loan-to-value covenants; and
• “‘systematic and institutional’ behaviour in artificially distressing otherwise viable businesses, putting its customers ‘on a journey towards administration, receivership and liquidation’”.

Property Participation Fee Agreements

As part of RBS’s GRG strategy, it required a number of customers to enter into Property Participation Fee Agreements (“PPFAs”) with its subsidiary, known as ‘West Register’. A PPFA is essentially a contract which provides for a return or payment from the Bank’s customer, and which is linked to the value of the customer’s asset(s). In certain circumstances, customers may have a claim against the Bank in relation to the PPFA, e.g., if they have been unfairly and unlawfully forced into entering into it or they have been negligently advised as to its terms.

The next steps

The Financial Conduct Authority (“FCA”) has investigated the conduct of RBS, its GRG division and West Register and identified a potential conflict of interest in GRG being run as an “internal profit centre”, whilst also being responsible for deciding which of RBS’s customers were transferred to GRG and when a customer’s business was no longer financially viable. In particular, the scope for a conflict would most likely have arisen at that latter stage.

It has recently been reported that RBS is considering a compensation scheme for certain affected customers. However, and if this does come to fruition, it is likely that this will take a significant period of time. Meanwhile, many businesses may lose their entitlement to bring court claims against the Bank and to recover damages as a result of strict legal deadlines.

How can Ellis Jones help you?

Ellis Jones Solicitors has received and acted upon a number of complaints from clients in relation to RBS’s GRG division, West Register and/or Property Participation Fee Agreements and is experienced in advising and dealing with such matters. If your business has been transferred to GRG and you wish to discuss a potential claim or complaint then please contact Paul Kanolik (paul.kanolik@ellisjones.co.uk) or William Fox Bregman (william.foxbregman@ellisjones.co.uk) in our specialist Banking and Finance Litigation Department on 01202 525333.