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.