Small and Medium-sized Enterprises: Mistreatment

Viscount Chandos Excerpts

Thursday 27th June 2019 Lords Chamber

[Viscount Chandos (Lab)]

My Lords, we are indebted—the appropriate word in this case—to the noble Baroness, Lady Bowles, for securing time for this short debate and for her forensic speech introducing it. I begin by drawing your Lordships’ attention to my entry in the register of interests, in particular as a director of the Credit Services Association, the trade association for the debt collection and debt purchase industry—while noting that its members are overwhelmingly focused on consumer credit collection. I am also a long-standing personal customer of RBS, although I will be checking if my debit card is still working following this debate.

“UK’s most trusted financial platform … Effortless every day, brilliant when it matters”—


these were the claims in an investor presentation by RBS on its UK personal and business banking. Pre-financial-crisis hubris, perhaps? No, the presentation was made on 24 September 2018, nearly five years after the report by Lawrence Tomlinson which first laid bare the systemic failures of RBS’s global restructuring group, and even after the FCA’s subsequent report had been published by the House of Commons Treasury Select Committee earlier that year. In 47 PowerPoint slides, RBS made no reference of any sort to the problems in the GRG.

Ross McEwan, the RBS CEO, said to the Treasury Select Committee in evidence for its report SME Finance that,

“the culture, structure and way RBS operates has changed fundamentally”.

How well does this claim—worthy of a Conservative Party leadership candidate—stand up to scrutiny? The same Treasury Select Committee report says:

“The overwhelming majority of those responsible for cultivating GRG’s patently unprincipled culture remain employed in RBS’s new restructuring division”.


Some 136 out of 182 employees in the new restructuring division had previously been part of the GRG. Even more disturbingly, of the 32 senior managers in the new restructuring division, 30—I repeat, 30; all but two—had been members of the GRG.

Your Lordships will have had experience of changing culture in organisations—even if, I hope, not necessarily from such a toxic starting point. How credible is the claim that there has been fundamental change, when over 90% of the unit’s senior management is unchanged? It is in this context that we should read the FCA’s latest report and form a view as to its completeness.

I am, in general, a supporter of the FCA, and have seen the constructive approach and quality of people it has brought to the regulation of the consumer credit industry. I look back at the journey that financial markets regulation has taken since before the Financial Services Act 1986 to now, and believe that we have a regime more suitable for competitive markets and concern for consumer protection. I conclude, from experience, that the FCA compares favourably in general with regulators in many other countries. But it is difficult not to be profoundly disappointed by this report.

Yes, of course the fact that commercial lending is an unregulated activity, even if conducted by a regulated entity, presents problems, although this must seem like a very arcane distinction to the thousands of victims of RBS’s “unprincipled culture”. Yes, the approved persons regime did not offer the scope that the senior managers certification regime might do for a broader judgment, although it is disturbing that, as I understand it, Andrew Bailey is not certain that even the SMCR would have enabled the FCA to take more decisive action.

However, within all these constraints, and taking just one specific issue in the limited time available, is it not still extraordinary that the FCA discusses the challenges in balancing the GRG’s two objectives—“turning customers around” and “generating a return for RBS”, which the noble Baroness, Lady Bowles, referred to—without any mention of any sort of the incentive remuneration and career appraisal policy that applied to RBS employees in the GRG? How were those employees remunerated, and how were they appraised relative to those two objectives? The FCA is engaging actively in the question of alignment within other areas of financial services, but is totally silent in this report, where it would have been so relevant.

I have two questions for the Minister with a view to mitigating the risk of recurrence. First, like the noble Baroness, Lady Bowles, I ask whether the Government will take the necessary steps urgently to make commercial lending a regulated activity. Secondly, remembering that the Government are a 62% shareholder in RBS, will they report how UKFI, as the shareholder, is interacting with the RBS board—not as a government shareholder but as a normal, responsible investor—to improve the culture of the group?