The Treasury’s role in determining the strategy and actions of RBS’s disgraced restructuring unit GRG is to be examined in court for the first time after a High Court judge ruled the issue was relevant to a £100m claim being pursued by a Manchester-based property developer.
The court ruling on Friday allows Oliver Morley, who claims the bank placed his business under “economic duress”, to amend his claim to include allegations that an executive branch of the Treasury, the Asset Protection Agency, had significant operational control of the GRG. RBS said it believes Morley’s claims do not have any merit.
The allegations that the government may have had a role to play in the GRG scandal, which led to thousands of people losing their businesses and livelihoods, has led to accusations from senior politicians of a potential cover up.
Former business secretary Vince Cable told City A.M. that the banking industry regulator, the Financial Conduct Authority (FCA), “simply cannot be trusted to investigate the GRG thoroughly” and accused the watchdog of “frantically covering up uncomfortable truths”.
Cable's accusations come as the FCA prepares to publish a report into why it was unable to enforce action against senior RBS individuals, after an independent investigation by independent financial group Promontory found “widespread inappropriate treatment of customers”.
The second stage of the Promontory investigation would have examined the “root causes” of RBS misconduct – including conflicts of interest, the role of external stakeholders and reward and incentives structures for RBS staff – but was halted after the FCA said it would replace it with its own investigation that would be backed by enforcement powers. It caused widespread dismay when it announced last July that it was in fact unable to prosecute those responsible for GRG misconduct.
In light of the recent allegations regarding the Treasury’s involvement in the GRG, MPs are now questioning the FCA’s decision to take ownership of phase two of the investigation.
The current FCA chairman, Charles Randell, advised the Treasury on the Asset Protection Scheme, which insured RBS's toxic loans at the height of the financial crisis, while a partner at law firm Slaughter and May. The magic circle firm was the appointed legal adviser to the Treasury at the time of the recession. Cable said this was a "conflict of interest".
“The more people keep digging, the more people find of the FCA's unwholesome role in all of this," Cable told City A.M. "It appears the FCA is covering up information that is crucial to the public.
"It is now time for the FCA to come clean. The truth will emerge and it is time the FCA got ahead of this instead of frantically covering up uncomfortable truths."
The Lib Dem leader added that he would be writing to the chair of the Treasury Select Committee Nicky Morgan to demand an investigation into the role of the Treasury in GRG and the FCA's “failings over this”.
The current co-chair of the parliamentary group on fair business banking, Kevin Hollinrake, echoed Cable's concerns. "We said some time ago that we weren't happy that the FCA didn't want to carry on with stage two [of the investigation]," he said. "Promontory clearly did too good a job.
"The revolving door is spinning so fast it feels like your nose is bleeding.”
Hollinrake warned that if the FCA’s soon-to-be published report was “simply a whitewash” parliament would consider lodging a judicial review of the process.
A spokesperson for the Treasury said: “The APS’s objective was to maintain financial stability and protect taxpayers’ interests by ensuring participating banks managed their exposure to high-risk assets responsibly, while at the same time treating their customers fairly.
“The FCA skilled persons’ review of RBS GRG made it clear that participation in the APS made no difference to the way in which RBS customers were treated.”
An FCA spokesperson said: “We are aware of these allegations [on the role of the APA in the GRG]. The FCA conducted an investigation into the individual liability issues and announced the results of that investigation last July. We will be publishing a full report about the findings of the enforcement investigation shortly.”
“Charles [Randell] has had no involvement in the investigation into GRG or the decision not to take enforcement action. Charles’s role in the recapitalisation of the banking system ten years ago, including the government’s decision to underwrite troubled bank assets, is a matter of public record but he has not been party to any decisions of the Asset Protection Agency.”