Regulation  

MPs issue warning on RBS small business unit

MPs issue warning on RBS small business unit

The "overwhelming majority" of RBS bankers who worked in the controversial Global Restructuring Group (GRG) remain employed in the bank’s new restructuring division, the Treasury Committee has said.

This was revealed in the committee’s 64-page report on small business finance, published on Friday (26 October), which said GRG had recklessly destroyed livelihoods in pursuit of profit.

The committee said RBS’s decision to retain those staff threatened to "seriously undermine RBS’s claim that the bank’s culture has changed fundamentally in recent years" adding that it "raises concerns that the bank has merely undertaken a rebranding exercise".

GRG was investigated by the Financial Conduct Authority after concerns it was artificially distressing and transferring otherwise viable small businesses to profit from their restructuring or insolvency but the regulator concluded its activities fell outside its remit.

Nicky Morgan, the committee's chairman, said small businesses found themselves in a "regulatory black hole" and recommended the creation of a special tribunal to handle disputes between businesses and their financial services providers.

She added: "The Treasury should bring commercial lending inside the regulatory perimeter, allowing the introduction of a regulatory regime that adequately protects SMEs."

In addition to the warnings on RBS, the committee made broader observations on the reluctance of small and medium-sized enterprises (SMEs) to seek external finance because of a lack of trust in lenders and a fear of having loan applications rejected.

It found SMEs had an "unwillingness to apply for finance" and were often unaware of the funding options available to them. The committee recommended more work be carried out to identify why this was the case.

"The Treasury should conduct or commission work to identify why this attitude is commonplace amongst SMEs and develop a strategy to ensure the UK’s small businesses have the confidence to seek the external finance that is right for them," the committee said in the report.

"Efforts should also be made to ensure SMEs are aware of the options available to them if they are turned down for finance; specifically, the Lending Appeals Process and the Bank Referral Scheme."

The report found bank lending to SMEs remained at below crisis levels, which the committee said was "cause for concern" but noted banks’ risk appetites were a legitimate commercial decision. Smaller UK banks said capital requirements had an impact on their risk appetites.

The committee also reiterated the concerns first raised two years ago in the Competition and Markets Authority’s retail banking market investigation, in which concerns around competition in the banking sector were first identified.

In Friday’s report, the committee suggested it should "monitor developments closely over the next two years" and recommended the CMA gave an update on whether its measures announced at the end of its previous investigation had been successful.

While it was noted that growth in the UK’s alternative finance sector had been "impressive", it was still considered to account for a small portion of loans made to SMEs. The committee urged the government to do more to stimulate alternative sources of lending to small businesses.