As the fallout from Royal Bank of Scotland's small business mistreatment scandal continues, the effects are being felt beyond the institution and across the entire financial services space.
But as regulators crack down on unfair small business finance practices — and as banks work to comply with new requirements — new revelations have emerged that a U.K. government agency may have had its own role in the RBS scandal.
Reports in the BBC on Tuesday (Jan. 29) said the publication has learned the U.K. Treasury's Asset Protection Agency (APA) allegedly influenced the strategy of RBS's Global Restructuring Group (GRG), the unit found to have unfairly treated small business customers and pushed some into insolvency. According to the BBC, the APA had a hand in some "decisions that determined business customers' fortunes."
The Treasury declined to comment, while RBS denied the reports.
In one case reviewed by the publication, small industrial warehousing company Oliver Morley Estates, which is currently pursuing legal action against RBS, claims that GRG relationship managers denied a refinancing proposal to rescue the business because the APA blocked the action — despite RBS's preference to move forward with the initiative. The BBC cited "emails quoted in court" and additional court evidence in its report.
Court evidence also showed that the APA instead wanted Oliver Morley Estates property to be sold to RBS's property division, West Register, the publication added.
The BBC said the supposed involvement of the APA in the GRG's decision-making is the result of the government bailout of RBS, as the APA oversaw the Asset Protection Scheme, which insured billions of dollars worth of loans against default by taxpayers, between 2009 and 2012.
In a statement, RBS said "it is contesting [the claims] vigorously in court."
"The bank incurred around £30 million [about $39.5 million] of losses on the £75 million [about $98.7 million] it lent Mr. Morley, who was a sophisticated customer in receipt of extensive professional advice," RBS told the BBC.
Evidence of the APA's involvement in the GRG's actions with small businesses is also found in "previously unnoticed" APA documents, the BBC reported, citing public sources that revealed the GRG required APA approval to release small businesses from secured loans.
This requirement gave "the Treasury an effective veto on any refinancing by business customers wanting to exit GRG," the publication said.
Previous comments made by GRG Head Derek Sach during a hearing before the Treasury select committee in 2014 also underscored the Treasury's reported involvement in the GRG debacle.
According to Sach, the APA was "always pushing us to go for more foreclosure" to strengthen RBS's balance sheet.
The BBC first reported in 2017 about the mistreatment of small businesses placed into GRG, an RBS unit intended to help struggling small businesses that instead pushed some into insolvency. A report leaked to the publication revealed RBS had sought to profit from those struggling small businesses.
As a result, the Financial Conduct Authority (FCA) launched its own inquiry into the matter, but concluded last year that it would not take further action on the matter. The FCA plans to publish a full report on the findings of its GRG probe, reports said. The Treasury Committee published its findings of another inquiry into the matter earlier last year, with the Committee's chair Nicky Morgan slamming RBS's behavior as "disgraceful."
In the wake of these revelations, small businesses, lawmakers and banks themselves have called for stricter small to medium-size business (SMB) lending regulations to protect borrowers. RBS's own chief executive also called on U.K. policymakers to do so, arguing that a lack of government oversight is what allowed for the mistreatment of small firms in the first place.
"I think somebody needs to be there to put a second view around the [SMB] marketplace," said RBS CEO Ross McEwan during a press conference in October. "Some sort of regulation around that seems to be needed."
The BBC's reports of the Treasury's reported involvement in the GRG saga emerged the same day that U.K. bank TSB rolled out a series of measures designed to protect small businesses, while the institution has also vowed to support SMBs in financial distress.
"The issues of the last decade have shown there is a need for greater protections for business borrowers, and we hope that the rest of the business banking industry will follow suit," said TSB SME banking director Richard Davies in a statement announcing the move, which includes a pledge by TSB to not force a small business into default if it keeps up with loan repayments.
In another statement, Conservative MP and Co-Chair of the All Party Parliamentary Group for Fair Business Banking Kevin Hollinrake called TSB's announcement "refreshing."