RBS facing criminal probe for killing small businesses
27 November 2013
The Royal Bank of Scotland is facing a criminal investigation over accusations of deliberate killing off of small businesses for its own gain.
A probe into the taxpayer-owned bank's treatment of its business customers is under consideration of the Serious Fraud Office (SFO).
It would investigate whether the lender systematically defrauded companies by forcing them out of business.
The SFO's inquiries are at an early stage and a full-scale formal investigation had to be launched yet.
According to a spokesman for the SFO, the office was aware of the issue and was monitoring developments.
It was in the process of assessing whether it was a case of poor business practice that remained within the law, or whether it crossed the line into criminal behaviour.
The allegations were levelled in a report by Lawrence Tomlinson, the 'entrepreneur in residence' at the Department of Business.
Business secretary Vince Cable said he had been 'appalled' by the study, while chancellor George Osborne said the allegations were 'shocking'.
According to the report, the lender manipulated customers into committing minor breaches of the terms of their loan, so as to shunt them into a special division known as the Global Restructuring Group (GRG).
Once firms entered the GRG, they were hit with exorbitant interest rates and fees, causing some to collapse, enabling RBS to strip their assets at rock-bottom prices, the report claims.
The lender put some "good and viable" businesses into default so as to make more profit, the report claims.
The findings have been referred to the Financial Conduct Authority and the Prudential Regulation Authority.
The bank said it was already committed to a probe into customer treatment.
According to the report, putting a business into the GRG generated revenue for the bank through fees, increased profit margins and the purchase of devalued assets by their property division, West Register.
The practice of removing a bad debt from a bank's books was not unreasonable with major lenders trying to move away from riskier assets.
However, according to Tomlinson who told BBC that there was a perception among small businesses that they were being "purposefully distressed" in order to get them into the GRG.
The bank said in a statement: "In the boom years leading up to the financial crisis, the over-heated property development market became a major threat to the UK economy.
"RBS did more than its fair share to fuel this and commercial property lending was one of the key drivers of our near collapse as valuations rapidly plummeted."