RBS announces loss as it is hit by litigation and compensation costs


The costs of paying customer compensation and regulatory fines have led to Royal Bank of Scotland (RBS) announcing a loss of £446 million for the first three months of 2015. Its losses in 2014 were £3.5 billion.


The banking group, which includes NatWest and Ulster Bank, was forced to set aside £856 million in the quarter to cover ‘litigation and conduct’ issues. This figure includes £334 million to pay costs related to rigging of the foreign exchange markets, an additional £100 million to cover claims for mis-sold payment protection insurance (PPI) and £257 million to cover mis-selling of investments and packaged current accounts.


The UK financial regulator, the Financial Conduct Authority (FCA), has fined RBS a number of times in recent years:


  • February 2013 – £87.5 million for manipulation of the LIBOR lending rate
  • July 2013 – £5,620,300 for failing to report wholesale market transactions in the correct manner
  • August 2014 – £14,474,600 for deficiencies in its mortgage advice
  • November 2014 – £217 million for manipulation of the foreign exchange market
  • November 2014 – £42 million for IT systems failures


As of May 2015, RBS’s total provision for PPI compensation is £3.3 billion, while its reserves for mis-sold interest rate hedging products (IRHPs) and associated administration costs stands at £750 million.


Like all major high street banks, RBS has mis-sold a number of products in recent years. General criticisms made of banks concern products such as:


  • PPI – designed to cover loan repayments if the borrower was unable to work. This insurance was routinely sold to customers without their knowledge or consent, or to those who did not need it or could not make a claim
  • Card protection products – designed to protect the customer against fraudulent use of their bank card, but in most cases the customer would not have been liable in any case
  • Mortgages – a series of issues in this area, such as selling interest only mortgages to customers with no repayment plan, and conducting insufficient affordability assessments
  • Packaged current accounts – these involve the customer paying a monthly fee in return for certain insurance policies and other benefits which are provided as extras with the account. However, some customers were ‘upgraded’ to a packaged account without their knowledge, while others did not need the insurance or could not claim
  • IRHPs – designed to protect business customers against rises in interest rates, but instead left them saddled with significant policy fees when rates did not rise
  • Investments – often sold to customers without a proper explanation of the associated risks


Latest complaints figures from the FCA (covering all firms) show that there was a 22.5% rise in the number of complaints being made about current accounts in the second half of 2014, when compared to the first six months. Complaint numbers in most other areas, including PPI, were down.


In most cases, complaints can still be made about sales of these products, regardless of when they were sold. The Financial Ombudsman Service (FOS) will consider any complaint from an individual customer or small business provided it is less than three years since the customer should have become aware of a problem with the product. In most cases, the procedure involves complaining to the provider, then referring the complaint to the FOS if the customer is dissatisfied with the way the firm has resolved the complaint.


A formal redress scheme was put in place for IRHP complaints, but many customers who bought these products were excluded from this scheme. They can still make a complaint to the bank, and then to the FOS if necessary. A formal redress scheme was also put in place for card protection products.


The UK Government still owns 79% of RBS following its bailout in 2008. Speaking before the General Election, Chancellor of the Exchequer George Osborne MP told the Financial Times his Government wanted to “get rid of the stake as quickly as we can”. Now that a Conservative government has taken office, with Mr Osborne remaining as Chancellor, it remains to be seen what progress can be made in this area.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.


Advisers warned over use of webmail accounts

Experts from both the compliance and IT industries have expressed their concern after it was revealed that 9% of financial advisory firms in the UK were using a webmail account as their main company email address.

Research by business intelligence agency Matrix Solutions found that 427 of the 4,945 firms surveyed were using an account from a web-based provider such as Googlemail, BT Connect, Yahoo or AOL. These accounts are generally thought to be much less secure than specialist business email accounts.

Even if the main firm email account is not a webmail account, some firms may have individual advisers who are using webmail for business purposes, especially if the advisers operate remotely and/or on a self-employed basis.

Firms are advised to seek assistance from their IT services provider to put in place email systems that are as secure as possible. Staff should be trained in data security issues and warned about ways in which the firm could be targeted by fraudsters and scammers.

Gary Williams, director of data protection and data security consultants Protectmydata.co.uk, commented:

“Webmail is about as bad as it can get in terms of security. It bumps up against some of the fundamental security questions firms should be asking themselves: who can see my data, where is it and how long is it retained for? If Yahoo deletes your account, for instance, can you recover it?”

Matt Timmins, joint managing director of compliance consultancy SimplyBiz, said:

“Using webmail to transmit important data and client details is extremely risky. These accounts do not always have the security and controls in place that are needed to safely send and receive client data. They are prone to hacking, identity fraud, cloning and extracting data through robots.”

As well as the central issue of data security, another concern raised by the experts is that clients could be more likely to be duped by a scam if their adviser uses webmail. Scam emails often come from webmail accounts, yet if their adviser also uses one it could make spotting the fake communications all the more difficult.

Sherief Hammad, director of It consultancy NCC Group, said on this issue:

“If you use a webmail domain and one of your clients is approached by someone using another aol.com address, they would not immediately think that was strange. Their ability to understand when something is amiss is diminished. That in itself increases the risk of a security breach because a lot of the new scam techniques play on psychology and the way people interact.”

Mr Williams also advised firms against sending client details via any form of email system.

Firms should also be wary of requests for client data that appear to come from providers. Before replying, firms need to be satisfied that the communication really has come from the provider. They should also ask themselves – should the provider realistically already have this information, and why do they need to ask me for it?

The data security pages on the Financial Conduct Authority’s website give examples of inappropriate use of customer’s data. The regulator cites the following examples:

• Listing answers to clients’ security questions – the questions they must answer when calling the firm – on their monthly statements
• Stating a client’s national insurance number, age, date of birth, and salary on an annual statement
• Sending out promotions which include application forms partially completed with some of the client’s personal information

All of these practices could lead to a data security breach if the communication is intercepted.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.


Fears over effect of Mortgage Credit Directive on mortgage prisoners

There have been reports of a number of lenders not allowing concessions to customers who are trapped on unfavourable rates when applying the affordability criteria under the Mortgage Market Review (MMR), a new set of mortgage rules which were implemented in April 2014. Yet the problem could get worse when the European Union (EU)’s Mortgage Credit Directive comes into force on March 21 2016.

The Directive will insist that the lender carries out a comprehensive affordability assessment for all applicants, and that if they cannot meet the criteria, then their application would be rejected. This would apply even if the deal the customer is applying for is actually cheaper than their current arrangement, and they would therefore be forced to remain on their existing deal. This gives rise to a paradoxical situation whereby the borrower is told ‘you can’t afford this mortgage, so you need to stay on your existing, more expensive mortgage’.

There will be an exception for customers who re-mortgage to cheaper deals with the same lender, but in practice this is unlikely to help much, as a lender has little incentive to offer their current customers more attractive deals.

The present situation under MMR requires lenders to check if the mortgage repayments would be affordable if interest rates rose to 6%, before they grant a mortgage. It does allow lenders to use their discretion for ‘mortgage prisoners’ – those trapped on unfavourable deals as described above. In practice, only a few smaller lenders are actually making use of this facility, but when the Directive is implemented, it will not be available to anyone.

Martin Lewis, founder of the consumer website Moneysavingexpert.com, has announced that he intends to campaign against this element of the Directive. He will meet the EU’s commissioner for financial services, Jonathan Hill; and intends to write to the Financial Conduct Authority’s chief executive, Martin Wheatley; and a Minister from the Treasury in the new UK Government.

A few weeks previously, as part of the General Election campaign, Nigel Farage, leader of the anti-EU United Kingdom Independence Party, told Mr Lewis’ website that the Directive “will … cut many borrowers from the best rates.”

The chief executive of the Ipswich Building Society, one of the few lenders currently offering concessions to mortgage prisoners, also criticised the EU proposal. Paul Winter commented:

“There are almost 800,000 mortgage prisoners across the UK – including older borrowers, the self-employed and those who have experienced life changes. It should not be the case that those who are approaching the end of a deal are forced to continue on a more expensive SVR rate and are denied choice and entry to an otherwise competitive market. We’re calling for a more inclusive approach to mortgage lending.”

Other effects of the Directive will include:

• Second charge mortgages (often known as secured loans) will be subject to a similar regulatory regime as first charge mortgages, including requirements regarding affordability assessments and advisers’ qualifications
• Customers must be given a European Standardised Information Sheet – a new method of ensuring certain important information is disclosed to the customer. This document will replace the existing Key Features Illustration
• Additional regulation for buy-to-let mortgages

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.