RBS announced alongside the report's findings that it will automatically refund complex management fees worth £400 million to small and medium-sized enterprises (SMEs) that went through its controversial restructuring process.
CEO Ross McEwan says the bank is "very sorry" for what happened to businesses that went through RBS' restructuring arm between 2008 and 2013, and insists that: "The culture, structure and way RBS operates today is fundamentally different from the period under review."
The FCA has been investigating allegations of wrongdoing at its Global Restructuring Group (GRG) since 2014. RBS's GRG was accused of artificially engineering small businesses into default on their debts so that the bank could extract cash from them.
The allegations date back to 2013 but were recently resurrected when documents were leaked to Buzzfeed and the BBC. The publications claimed that "staff were asked to search for companies that could be restructured, or have their interest rates bumped up," in a project known as "Dash for Cash."
The Financial Conduct Authority (FCA) announced on Tuesday that it has concluded RBS "did not set out to artificially engineer" SMEs to fall into the GRG and "there was not a widespread practice of identifying customers for transfer for inappropriate reasons, such as their potential value to GRG."
But the regulator says it did find some "widespread" inappropriate practice, including "failure to support SME businesses in a manner consistent with good turnaround practice," "placing an undue focus on pricing increases and debt reduction without due consideration to the longer term viability of customers," and serious communication failings.
The FCA says "some elements of this inappropriate treatment of customers should also be considered systematic." Two thirds of the businesses that ended up in the GRG "experienced some form of inappropriate action," but the FCA adds: "It was likely that inappropriate actions did not result in material financial distress to these customers."
Despite the serious failings and inappropriate behaviour identified by the FCA, the regulator says its "powers are limited" when it comes to punishing RBS as it does not regulate the practice of restructuring struggling businesses.
RBS, which also announced a new complaints proceedure on Tuesday, says in a statement that "in some areas, it could have done better for SME customers." CEO Ross McEwan says in the same statement:
"We have acknowledged for some time that mistakes were made. Some of our customers went through what was a traumatic and painful experience as a result of the crisis. I am very sorry that we did not provide the level of service and understanding we should have done.
"The culture, structure and way RBS operates today is fundamentally different from the period under review. We have made significant changes to deal with the issues of the past, so that the bank can better support SME customers in financial difficulty whilst also protecting the bank's capital."
The background
Lawrence Tomlinson, who wrote the original report for the government alleging Royal Bank of Scotland forced companies into default for its own benefit.
In 2013, Lawrence Tomlinson, an independent businessman who owns the construction and healthcare group LNT Group, was asked by the then
Cable also asked two consultancies, Mazar's and Promontory, to do a report on the GRG unit in RBS and to give it to the Financial Conduct Authority.
Tomlinson subsequently released a report in January 2014 which claimed that RBS would make money out of struggling businesses by placing them into RBS's "turnaround division" - the GRG unit. He included real life case studies of businesses that claimed they were engineered into default. The GRG unit then allegedly bought their assets cheaply, bumped up their interest rates, or otherwise extracted cash from them.
More than 12,000 companies were allegedly pushed into the GRG unit after the onset of the credit crisis in 2008. The BBC pointed out that "between 2007 and 2012, the value of loans to customers in the GRG increased five-fold to more than £65 billion."
Tomlinson outlined at length that RBS was able to increase revenue by charging higher fees and margins for the struggling businesses in the GRG unit and this, in turn, would allow the bank's property division, West Register, to purchase devalued assets. (The FCA concluded there "was no evidence that an intention for West Register to purchase assets had been formed prior to the transfer of the customer to GRG," and "no cases identified where the purchase of a property by West Register (as opposed to by another person) alone gave rise to a financial loss to the customer.")
We found no evidence of systematic defrauding of business customers
In April 2014, RBS responded by calling in the law firm Clifford Chance to do an "independent review" of the situation. They "found no evidence of systematic defrauding of business customers." RBS' full statement is here.
However, that was not the end of the saga.
In July 2014, Andrew Tyrie, the chairman of the Treasury Select Committee criticised RBS for being "willfully obtuse" and delivering a "belated U-turn" when the panel grilled RBS executives over the GRG unit.
RBS Deputy Chief Executive Chris Sullivan and GRG boss Derek Sach actually sent a letter to the panel apologising for misleading it.
"It now appears that RBS has been wilfully obtuse with the committee. If this is how RBS deals with a parliamentary committee, how much can customers and regulators rely on it to be straightforward with them?" said Tyrie at the time.
In August 2014, RBS shut the GRG unit and in January 2015, Sullivan left the bank. Meanwhile, RBS still faces lawsuits from GRG "victims."
FCA made some excuses for the long delays in delivering its report into the GRG matter, saying on Tuesday that looked through 207 cases spanning approximately 1.5 million pages and 270,000 emails