The Financial Conduct Authority (FCA) today said it will take no action against Royal Bank of Scotland (RBS) following the scandal over its treatment of customers in the now notorious global restructuring group (GRG).
The City watchdog took legal advice which found that GRG's activities were not within its remit, ruling out any sanction against the body.
Andrew Bailey, FCA chief executive said: "It is important to recognise that the business of GRG was largely unregulated and the FCA’s powers to take action in such circumstances, even where the mistreatment of customers has been identified and accepted, are very limited.
He said that punishment from the FCA was "always going to be difficult and challenging" and that "our powers to discipline for misconduct do not apply". Any attempt to sanction senior managers "would not have reasonable prospects of success", because of the lack of evidence of dishonesty or deliberate unfair treatment by bosses, he said.
The GRG scandal has been a long-running sore for RBS, after extensive allegations of misconduct and cultural deficiencies at the bank. Memos from former RBS staff in a previously published report told employees to "let customers hang themselves" and said employees should charge struggling businesses high fees.
Kevin Hollinrake, the MP who heads the all-party parliamentary group on fair business banking, said the FCA should release all the findings and evidence from its investigation so that the bankers responsible are "accountable and not untouchable".
While some of the staff responsible for the worst misconduct have left the bank, 94 per cent of the managers in its new restructuring arm previously worked at GRG.
Hollinrake said: “The FCA should release all of their findings so that the untouchable senior managers at RBS GRG, many who remain working in the banking sector, are held to account. The public, the press and indeed the financial sector themselves have a right to know who is responsible for this misconduct”.
Bailey acknowledged that "many GRG customers will be frustrated by this decision" but said the regulator had no options left.
In an update on its investigation the FCA strongly criticised RBS's processes, saying that GRG did not adjust quickly enough when the financial crisis led to more struggling firms being referred to it.
The scandal has exposed a large gap in the regulation of lending to smaller firms, which is not covered by the FCA. The failings were large enough to trigger disciplinary action were RBS regulated, the FCA admitted.
Bailey said that RBS had fallen "well short" of expected standards, and said the FCA is monitoring the bank's complaints process. He said: “We feel strongly that those companies that have suffered loss as a result of how they were treated whilst in GRG must be appropriately compensated."
Howard Davies, RBS chairman, said: “The board welcomes the FCA’s confirmation that it has concluded its investigation into the bank and that no further action will be taken. We await the publication of the FCA’s full account and will reflect carefully on its findings to learn any further lessons from what was a hugely challenging time for the bank, its customers and the wider economy.
“The board continues to focus on putting things right for customers through our complaints process and ensuring that past mistakes cannot be repeated. The way the bank deals with business customers in financial difficulty is fundamentally different now.”