The Financial Conduct Authority’s report into RBS’s Global Restructuring Group (GRG) makes lamentable reading for those of us who are trying to place corporate and operational governance at the heart of institutional decision-making.
That the UK’s largest bank, albeit 70 per cent owned by the taxpayer when much of the wrongdoing took place, could treat small businesses with such a cavalier attitude is both scandalous and a reputational disaster – for RBS and the wider financial services industry.
We don’t need to go into details of the report here to acknowledge the difficult questions that it poses for anyone who cares about corporate governance.
The first question we need an answer to is this: what did the board know? It simply is not good enough for Ross McEwan to now say that the poor treatment of customers, specifically the “Just Hit Budget” memo (which prioritised squeezing money out of struggling SMEs at all costs and advised giving them enough rope to “hang themselves”), was not wider RBS policy and that the individuals concerned are no longer with the bank, effectively absolving the board of any operational responsibility.
The board is responsible for the culture of the company as a whole. It cannot cherry-pick which divisions it casts its eye over or when and where it takes an interest. “We didn’t know” is not acceptable.
Second, we need to know what instructions the government gave to the board. With a 70 per cent stake, the government was in a position to demand that customers were treated with respect and that jobs and livelihoods were prioritised. I am not for a moment suggesting that “bad” businesses be propped up, but this report is clear that good businesses that could have been supported and saved were sent to the wall.
Third, this scandal has revealed a gaping hole in the financial protection offered to small businesses. The fact that SMEs have no recourse to the Financial Ombudsman and that the Financial Conduct Authority has, unfortunately, had to admit that their welfare is beyond its remit has left many of GRG’s customers devoid of any means of redress. This has to change.
Equally, RBS cannot hide behind the gaps in the regulations covering small businesses. Good governance is not a tick-box exercise, it is about taking responsibility.
What we need now is not just a review of what went wrong – we need to know what has changed. Certainly, the noises coming from the Financial Conduct Authority in regards to developing the role of the Financial Ombudsman are a welcome start, but we also need to know what has changed within RBS.
A key tenet of sound governance, in any organisation, is what I term closing the loop. In other words, not just diagnosing a problem, but prescribing a solution, monitoring its impact, feeding back the results to the board, and, if necessary, continuing the process until the desired results are achieved and the organisation truly understand what the board wants.
Then those results need to be communicated, not just internally, but externally – a real mea culpa.
RBS, the ball is in your court.