City watchdog and taxman tighten the screw on activities at RBS

Investigation ordered into commercial lending as HMRC reviews GRG file

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The Independent Online

Royal Bank of Scotland (RBS) came under fresh pressure on Friday night as the City watchdog ordered it to appoint a “skilled independent person” to investigate its commercial-lending practices as it emerged that the tax authorities are also reviewing a file on the activities of the bank’s Global Restructuring Group (GRG).

It comes in the wake of Monday’s report by Lawrence Tomlinson – entrepreneur in residence at the Department for Business, Innovation and Skills – that alleged GRG had forced viable businesses to go bust with the aim of turning a profit for RBS. Another report by Sir Andrew Large, which was commissioned by RBS, which was published on the same day, also criticised the bank’s treatment of small businesses.

The Financial Conduct Authority (FCA) said that although it does not regulate commercial lending “the allegations in these reports gave the FCA concerns as to whether RBS has treated customers appropriately, in particular those in financial difficulties.

“If substantiated, such allegations may also indicate wider concerns in relation to governance and culture within RBS.”

The watchdog said it would consider taking further action if the findings “reveal issues which come within the FCA’s remit”.

It has written to “all other relevant banks” seeking “confirmation that they are satisfied they do not engage in any of the poor practices alleged in the reports”.

The former chief executive of Torex Retail, Neil Mitchell, who blew the whistle on a fraud at the software company, has supplied HM Revenue & Customs (HMRC) with a file on the activities of GRG over the handling of distressed companies’ tax affairs.

The news comes in the wake of the allegation in Mr Tomlinson’s report that “evidence has been received that suggests businesses are being directed by the banks not to pay HMRC when in GRG”. He characterised the potential losses to the taxpayer as “significant”.

The Independent has learned that Mr Mitchell’s file has been given to the HMRC’s HUMINT or Human Intelligence department by its retail-banking trade sector adviser.

A spokesperson for HMRC said they could not comment on the matter. Although RBS is a public company controlled by the taxpayer ,the spokesperson said its tax affairs were “private”.

However, Mr Mitchell said that he was “delighted” that watchdogs were “finally” taking action “after I first raised this with the Financial Services Authority in 2010 and the FCA on 7th May 2013”.

It has been characterised as a problem only affecting small businesses and property. But it goes wider than that and includes large, stock market-listed companies employing thousands of people and financing of all assets beyond just property.”

Mr Mitchell has founded an action group with the aim of launching litigation against RBS on behalf of firms alleging misconduct by GRG. His team are currently in discussions with four firms with a view to pursuing the bank through  the courts.

He has also passed information on to the Securities & Exchange Commission in the US, where RBS shares are tradable, while the Serious Fraud Office has conducted interviews with businesses affected by GRG

In a statement, RBS said: “We welcome the FCA’s inquiry. As of now, no evidence has been produced that backs the claims of systematic fraud made this week. These claims have done damage to RBS’s reputation and threaten to undermine our ability to build trust with customers and to increase lending to businesses in the UK economy. We need to get to the facts as quickly as possible. That’s why we fully support the FCA’s work and will carry on with our own investigation.”

Earlier this week RBS appointed law firm Clifford Chance to conduct a review of its business lending.

However, on making the appointment, Ross McEwan, who was appointed chief executive in October, denied the report’s central claim that “RBS conducted a ‘systematic’ effort to profit on the back of our customers when they were in financial distress”.

On tax, RBS told The Independent that it was a business’s role “to decide what payments are made and when.

A bank spokesperson declined to comment on Mr Mitchell’s referral to the HMRC or on his plans to launch a legal case.