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FCA announces review of RBS’s GRG mis-treatment

The FCA has announced the initial findings of its review into GRG mis-treatment allegations by RBS. After nearly two years of investigation, why pick the day of the US elections to release this news?

Crucially, the amount set aside by RBS is only £400m. This immediately makes it clear that RBS is only going mainly pay back some excessive fee charges. This has long been Vedanta Hedging’s prediction.

Given our experience of working with and advising the FCA (we instigated the FCA IRHP Review scheme in 2011 and have been paid to advise the FCA); our advice to SMEs affected in a serious way by GRG (not just overcharged some fees) is to protect your legal position now. This is because as was discovered in the IRHP Review scheme, the later small revisions made to the scheme (without our advice) significantly reduced the amount actually payable by the Banks; ironically, mostly by RBS!

Important areas of wrong-doing that the FCA found are:

  • the failure to ensure that appropriate and robust valuations were made by staff, and carrying out internal valuations based upon insufficient or inadequate work – especially where significant decisions were based on such valuations;

This is critical because a low valuation was often used by banks to enforce an LTV breach and cause other serious problems for the borrower which the Bank could then use to its advantage.

The FCA also found:

  • the failure to handle the conflicts of interest inherent in the West Register model and operation; and
  • the failure to exercise adequate safeguards to ensure that the terms of certain upside instruments, in particular Equity Participation Agreements, were appropriate.

The above two points are significant because the consequential losses arising from them will be large; and not related to simply the refund of fees!

The FCA also found that ‘most’ of the viable borrowers who were put into GRG suffered some kind of inappropriate action. In other words, this is systematic and widespread; yet, the FCA has only asked RBS to refund fees!

More detail will inevitably follow from the Bank and FCA when the report is published. There remain many unanswered questions; for example what about when all of the GRG mis-treatment only arose because of a mis-sold IRHP ? What if those businesses have been sold, or subject to insolvency? The consequential losses of the value of businesses destroyed, personal guarantees enforced and losses such as loss of life are multiple times more than simply fee refunds.

Please contact us if you think you have suffered losses with GRG as it is better to be prepared and protect your legal position.