POLITICS

RBS Cleared Of Defrauding Small Firms By Clifford Chance Report

17/04/2014 13:52 BST | Updated 17/04/2014 14:59 BST
Philip Toscano/PA Wire
A branch of the Royal Bank of Scotland in Piccadilly Circus in central London.

The Royal Bank of Scotland has been cleared of systematic fraud by a report it commissioned into the conduct of its business support division, after claims that it had driven small firms out of business.

RBS CEO Ross McEwan welcomed the findings by legal firm Clifford Chance, which he had brought in to examine allegations made in a report by serial entrepreneur Lawrence Tomlinson that its GRG business support unit had "killed off" small firms with its "unscrupulous" practises.

By doing so, Tomlinson alleged that RBS had seized the profitable businesses' assets, normally property, at discount prices.

“This allegation had a profound effect on the bank and on the work of a team that successfully turns round the vast majority of businesses that it works with," McEwan said. "We could not let this allegation hang over us. That's why we acted quickly to appoint Clifford Chance to get to the truth of this claim. We are determined to earn back the trust of our customers."

Tomlinson, who wrote his report as the government's entrepreneur-in-residence, recently branded RBS a "vampire" bank due to the conduct of its GRG turnaround unit, which he accused of driving healthy small firms under by burdening them with fees and withdrawing lines of credit.

He told MPs: “When your business was moved into the GRG by whatever fashion, you were given perhaps a doubling of the bank’s interest rate margin and lots and lots of fees.

"The business becomes strangled. It is frustrating to hear talk on ‘zombie firms’. I liken them more to a vampire business – they are kept in the GRG and as soon as they get any cash to invest and grow, it is taken out of them."

Another report, by former Bank of England deputy governor Sir Andrew Large, found that the bank had treated some firms "roughly".

Treasury select committee chairman Andrew Tyrie told HuffPostUK that it was "clear" that the state-backed bank's culture had been "inimical to good quality servicing of SME lenders".

Clifford Chance's report, which interviewed 138 small businesses managed by the bank's support unit, found that the bank's fees "lacked clarity" in "some cases".

RBS admitted that the process which allowed the bank to bid for ailing businesses's property that it was auctioning off in order to help get on top of their debts led to a "damaging perception" of a conflict of interest. As a result, the bank decided to wind down West Register, the vehicle through which it would bid on property, and sell all of the assets it has on its books.

RBS also unveiled a raft of measures to "enhance" its support for financially distressed small firms, including greater notice for fees and delayed charged for distressed firms.

Ross McEwan said: "The bank, through its restructuring team, helped minimise those losses where it could, successfully turning round thousands of businesses, safeguarding hundreds of thousands of jobs. This required the bank to make incredibly difficult decisions, but our first priority then and now is to try and help our customers recover.”

Leo Ringer, head of financial & fiscal policy at the Confederation of British Industry, said: “Businesses want long-term collaborative relationships with their banks, so moves by RBS to focus on putting customers front and centre are welcome.”

Despite appointing Clifford Chance to carry out the report in response to Tomlinson's allegations, a Royal Bank of Scotland spokesman admitted that they had not give Tomlinson a copy.

Tomlinson himself confirmed to HuffPostUK that he did not get a copy "or any notification" but is planning to comment soon.

Speaking earlier to HuffPostUK, Tomlinson warned that for as long as GRG is "perceived as doing what it's doing", it will take RBS "longer than a generation" to win back the public's trust.