Royal Bank of Scotland is shutting down its controversial Global Restructuring Group (GRG), after suffering a maelstrom of controversy over the "huge financial harm" it has been accused of causing small businesses.
The state-owned bank's move comes as it battles allegations that the GRG turnaround unit deliberately "killed off" small firms struggling with their debts by adding on fees or pulling lines of credit, and on occasion seizing property.
As part of the process, Derek Sach, who heads the GRG unit, will leave the bank, along with Aubrey Adams, who ran its property division.
Shareholders accused the bank at its June annual general meeting of "covering up" for the GRG unit's "corporate psychopaths", who were unable to admit to wrongdoing. A report by former Bank of England deputy Sir Andrew Large found that the GRG unit was being run to make profit, something that the Bank denies.
Sources told the Huffington Post UK that the bank decided to wind down the controversial division in light of the improving economy, as "there are far less cases of businesses going into distress [and needing GRG]".
The bank's decision to wind down the GRG unit has been widely welcomed. Tory MP Andrew Tyrie, chair of the influential Commons Treasury Committee, said that RBS "still has a long way to go", adding: “The important issue here is whether RBS is now — and is seen to be — acting in the long-term interests of its shareholders and SME customers."
Entrepreneur Lawrence Tomlinson, whose original report highlighted RBS' controversial turnaround unit, said: "After the evidence I have received from businesses, and the truly upsetting circumstances many have found themselves in, I can only welcome today’s news about GRG.
"It is a bold, but significant move by the bank, which should start the important process of rebuilding the relationship of trust with the business community. The disbandment of GRG in its current form is a vital step towards creating a fairer banking system that treats customers well.”
RBS boss Ross McEwan has been publicly ambushed about the GRG unit, which is still being investigated by the Financial Conduct Authority city watchdog.
He was forced to deny that GRG had been "malicious or fraudulent", as he hosted a phone-in on LBC radio for the first time.
The caller, who gave her name as Sarah, asked how staff working at the bank's GRG unit could "morally" get bonuses "after causing so much emotional and financial harm".
She told McEwan of how the small property firm she worked for "had to repay millions on loans with RBS" and had to pay "a considerable amount of fees" despite never defaulting on any loans, and was on the verge of being put into administration.
In response, the RBS boss defended the controversial turnaround team as a "pretty good unit" that was "under a huge amount of pressure', adding that: "I have not seen malicious or fraudulent activity going on in the business."
Following Tomlinson's allegations, the bank commissioned lawyers from Clifford Chance to investigate the claims and later welcomed the report for claiming it of trying to "systematically defraud" small firms, something that Tomlinson had never claimed.
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".