March 11th, 2015
Britain’s banks would never have been able to get away with behaving as badly as they have, to missell as many financial products or ruin as many viable business customers if their sector had been subject to proper competition, the former entrepreneur-in-residence at the Department of Business Innovation and Skills, Lawrence Tomlinson, has said.
In response to the Treasury Committee’s report into SME lending and referring to the well-documented malpractice by Royal Bank of Scotland’s Global Restructuring Group (rebranded as RBS Capital Resolution, or “RCR” in August 2014), Tomlinson said :
“The Treasury Select Committee is rightly critical of the narrow brief and lack of independence of the Clifford Chance report into the allegations about RBS’s global restructuring group. The misleading evidence provided by the two senior executives of the bank, Chris Sullivan and Derek Sach, is testament to the culture that seems to prevail at RBS.
“Whilst I hope the Financial Conduct Authority’s report into GRG will be more far-reaching and independent, it must not be forgotten that the Clifford Chance report included some extremely concerning findings, especially in relation to lack of transparency of fees and the banks’ failure to use the RICS red book when undertaking valuations.
“I agree with the suggestion posed by the Committee that an untransparent fee is inherently an unfair fee. This should be considered in the FCA report given the negative impact these fees have had on businesses in GRG.”
Tomlinson earlier recommended the break-up of Britain’s bloated, dysfunctional state-rescued banks as a means of ending the misselling and customer abuse from which they have traditionally sought to thrive. He added:
“I’m delighted that the Treasury committee has taken such a firm stance on competition in the banking marketplace. I strongly endorse their recommendation that the Competition and Markets Authority should consider the need for structural reform to reduce market concentration.
“Through the publication of the Tomlinson Report, I hoped to highlight the type of behaviour that has been allowed to permeate the bank/business relationship, without recourse, due to the lack of competition for SME lending. Poor customer treatment has continued as borrowers have nowhere else to turn given the oligopoly of the big banks. As the Chancellor has recognised, bank behaviour is a core concern of the electorate.
“It is not too late to take decisive action, and I urge all political parties to give this full consideration when drafting their manifestos. It is a long-term solution which will generate a greater return to the Treasury than the immediate sale of the government-backed banks.”
In its 124-page ‘Conduct and Competition in SME Lending‘ report, the Treasury Committee also blasted the Financial Conduct Authority (FCA) over its so-called “redress” scheme for businesses that have been ruined or harmed as a result of being mis-sold interest-rate hedging products by British banks.
The committee’s chairman, Andrew Tyrie MP, said many of the SMEs that were missold these complex derivatives had been “treated unfairly” by the FCA’s compensation scheme, which he implied “unduly favoured the bamks“, echoing what I said about it in this blog in June 2014 and in The Times in September 2014. In conclusion, the Treasury Committee’s report said:
“the FCA should collect the information necessary to establish whether there are systemic failures in the review. The FCA should publish its findings, a summary of the complaints it has examined, and take any action it decides is appropriate to ensure that all customers receive fair and reasonable redress.”
The committee’s report said the fact two of RBS’s senior executives — Derek Sach and Chris Sullivan — had effectively lied to the committee in June 2014, was “indicative of a systemic weakness of standards and culture” at the state-rescued bank, which also owns NatWest and Ulster Bank.
The MPs’ report added: “It is understandable, indeed right, that banks should seek to support businesses in difficulty with special measures but how that is done and whether the institution or the customer is the main beneficiary needs much greater clarity.”
In its conclusions, the Treasury Committee report stated:
“Regulation can be an impediment to effective competition in banking. Regulators appear to have an instinctive resistance to new entrants: in the recent past, prudential requirements had been applied in a way that unnecessarily hindered new entrants, the authorisation process had been difficult for new entrants, and small banks had to reach an agreement with a larger one to have access to the payments system. The FCA now has a statutory objective to promote competition in the interests of consumers. The FCA must continue to transform its regulatory approach in order to fulfil this new objective. It is essential that the FCA’s approach to meeting this objective is not siloed within an individual department of the regulator, but instead permeates through the entire culture and approach of the organisation.”
This is more or less what Sir Donald Cruickshank said in his government-commissioned ‘Review of Banking Services in the UK’ (which I covered on pages 175-6 of my book Shredded: Inside RBS, The Bank That Broke Britain). Cruickshank published his report in March 2000 but the recommendations were kicked into the long grass by Gordon Brown’s Treasury, apparently by Sir Steve Robson, who was then the second permanent secretary at the Treasury and in charge of financial regulation. Robson later became a non-executive director at RBS.
Exactly fifteen years later, the call to allow proper competition in the British banking market has been rekindled. I sincerely hope the pro-banking oligopoly mandarins of H.M. Treasury do not, once again, stifle it at birth.