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Friday, 6 August 2010

And another thing...

I was going to make a post earlier this week about RBS and the FSA, but I had to go and look up the percentage state ownership (84% as it turns out) because it is quite relevant.

Earlier this week the FSA fined Royal Bank of Scotland Group plc (RBS) £5.6 million for not keeping adequate controls to prevent breaches of U.K. money-laundering rules. The Financial Services Authority said between December 2007 and December 2008, RBS units RBS PLC, NatWest, Ulster Bank and Coutts & Co. failed to adequately screen their customers and the payments they made and received against a U.K. sanction list.

"This resulted in an unacceptable risk that RBS could have facilitated transactions involving sanctions targets, including terrorist financing," the FSA said in a statement. Because RBS settled the claim at an early stage, it received a 30% reduction in the fine, the regulator added. RBS says it brought the deficiencies to the FSA's attention. The agency then launched the investigation, which has been disclosed in documents to the bank's shareholders.

"We have taken appropriate action to remedy these issues and continue to enhance our control environment with a view to ensuring a more robust sanctions compliance framework and ultimately that our detection and prevention capabilities are in line with best practice in the market," RBS said.

Wooahh, lets stop right there! What is going on here? At the end of 2008 and thereafter, the tax payer recapitalised RBS and took 84% of the common equity in the RBS group. If it hadn't done so the whole group would havce effectively disappeared, so the money and new management put in by the government is what has kept it going, but the fine relates to the period between 2007 and 2008 mostly under the old management and certainly under procedures set up by the Fred Goodwin orchestra.

So why is the tax payer who put in most of the £5.6 million being asked to pay for the mistakes of the previous management? And they must have been big mistakes to merit a £5.6 million fine if there was no actual money laundering. OK, 16% of that actually reduces the value of shares held by the "old" RBS shareholders, but the £800k the tak payer makes from that is probably more than covered by the FSA and their advisors' costs of the investigation.

And why is it the new management team (who brought the mistakes to the attention of the FSA) being made to pay? The poor procedures happened while RBS was under the supervision of the FSA. If anybody was guilty of lax procedures (apart from the old guard at RBS) it was the FSA who had to be told rather than finding out about the issues themseles, not the new management team, but in the la-la world of UK banking supervision, no one is accountable and everyone makes meaningless gestures at the tax payers' expense.


Edward said...

Surely the people who ought to be picking up the bill are the past management. Can RBS sue its former directors for reimbursement?

Alex said...

They would argue that:

1) They were not grossly negligent because they quite reasonably rely on the reports of their subordinates. A bank director doesn't personally check on these procedures - he relies on the reports of internal and external auditors, and the comments of the regulator.

2) There was no loss to anyone, apart from the fine to RBS, which arguably only happened because the government appointed directors pointed out the mistakes to the FSA.

It is also worth remembering that Fred the Shred's only qualification for being a bank chief exec was that he had been the administrator of BCCI, and probably knows where a few bodies are buried in that fiasco. UK bank regulators would therefore cross him at their peril.

Steven_L said...

Thanks for the banks posts Alex!

A bit tin foil hat, but could I venture that by grassing yourself up to these quangos for minor stuff, you tie up the few genuine investigators they have (i.e. ex-Met, ex-SOCA types) just leaving you the policy generalists to deal with.

The OFT for example is 90% civil service generalists and 10% the rest of the world.

Alex said...

I suspect that the "grassing themselves up" was simply the action of incoming management who wanted to cover their own baxksides. The deadbeats at the FSA (as I understand, mostly failed compliance officers from building societies and the like) who had missed what was going on thought they had make an issue of it - keeps them in a job after all. Hence the large sums of money and pointless gesture.