FCA defends decision not to act over RBS small firms scandal

The Financial Conduct Authority has defended its decision not to take punitive action against the Royal Bank of Scotland over the bank's treatment of small businesses by its global restructuring group.

GRG, the bank's now-defunct turnaround unit, was accused of pushing small firms towards failure, in the hope of picking up their assets on the cheap after the companies had gone to the wall.

Some firms said they were pushed into bankruptcy after they were transferred into the controversial division between 2008 and 2013.

RBS has since offered a total of £125m to victims of GRG.

The FCA said it had concluded that its powers to discipline anyone for misconduct "do not apply" to the GRG investigation.

The watchdog added that action against senior management in the global restructuring group for lack of fitness and propriety "would not have reasonable prospects of success".

The FCA said it had taken independent, legal advice on its decisions, which found that GRG's activities were not within its remit and confirmed "the FCA's conclusions are correct and reasonable".

But the Treasury select committee said the FCA's decision was "disappointing and bewildering" for those affected by the scandal and called for greater regulation of SME lending.

Nicky Morgan, chair of the committee, said: "This demonstrates the need for a change in how lending for SMEs is regulated.

"The government should stand ready to introduce any legislation required when it sees the outcome of current reports on redress and should also urgently consider what additional powers the FCA requires to act in cases such as GRG."

The MPs defied the FCA by publishing the regulator's confidential report in February, which exposed the poor treatment of small firms by GRG.

The committee's decision to publish came amid widespread criticism over the FCA's handling of the investigation and failure to make the report public.

Responding to criticism of the watchdog's inaction, FCA chief executive Andrew Bailey said: "Given the serious concerns that were identified in the independent review it was only right that we launched a comprehensive and forensic investigation to see if there was any action that could be taken against senior management or RBS.

"It is important to recognise that the business of GRG was largely unregulated and the FCA's powers to take action in such circumstances, even where the mistreatment of customers has been identified and accepted, are very limited.

"Taking action was therefore always going to be difficult and challenging but after carefully considering all the evidence we have concluded that our powers to discipline for misconduct do not apply and that an action in relation to senior management for lack of fitness and propriety would not have reasonable prospects of success.

He added: "I appreciate that many GRG customers will be frustrated by this decision, but we have explored all the options available to us before arriving at this conclusion."