In a document entitled 'Interim Results 2017,' the Royal Bank of Scotland Group states that on 21 July the Financial Conduct Authority notified it that it was investigating the bank’s compliance with the Money Laundering Regulations 2007 in relation to 'certain customers.'

Compliance Matters understands from people close to the investigation that it relates only to 'a handful' of about five customers and has nothing to do with the 'Global Laundromat' scandal in which RBS and a host of other very large British banks were implicated by a piece of investigative journalism published in the London Guardian in March. RBS says that it is co-operating with the investigation.

Other matters

The 'litigation, investigations and reviews' section of the banking group's 'Interim Results' report is vast, with the group 'making provision' for its liabilities in relation to various matters.

In February 2013, the Financial Services Authority (soon to split into the Financial Conduct Authority and the Prudential Regulation Authority) announced the results of a mystery shopping exercise in which it gauged the advice that RBS and other banks were giving to retail clients. It then required RBS to carry out a past business review and 'customer contact' exercise on a sample of historic customers to which it had given investment advice on certain lump sum products in 2012. In doing so it invoked s166 Financial Services and Markets Act, appointing a 'skilled person' to do the job. RBS paid 'redress' (compensation) to certain customers in the sample group. Later, RBS agreed to embark on a wider review/remediation exercise relating to certain investment, insurance and pension sales between 2011 and 2015, starting to write to customers in 2016. 'Redress' payments have begun and the project is due to finish at the end of this year.

In addition, RBS promised to carry out a 'remediation' exercise that involved sales of a structured product to its customers. The FCA, according to page 84 of the 'Interim Results 2017' paper, was worried that certain advisors had described the product in the wrong way and 'redress' has been paid to some of them.

Here and there

Elsewhere in the report, on page 75, the bank mentions that in 2013 (and subsequently, under the rubric of a group litigation order) some shareholders took it to court, alleging that it had made untrue and misleading statements and/or improper omissions, in breach of the Financial Services and Markets Act 2000, in connection with a rights issue. Full and final settlements have since been reached in nearly all cases. RBS has increased its total provision to £900 million - the "aggregate settlement figure" - in relation to this matter.

In September 2011, the US Federal Housing Finance Agency (FHFA), as conservator for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), took court action against RBS in the US in relation to about US$32 billion (£24⅔ billion) of residential mortgate-backed securities for which RBS entities acted as sponsor/depositor and/or lead underwriter or co-lead underwriter. Last month, RBS announced the settlement of this matter and paid the FHFA US$5½ billion (£4.24 billion). RBS Securities remains a defendant in a separate, unresolved FHFA case. Such is the enthusiasm of RBS for taking part in American cases that when it mentions them it lapses into American spelling ('offenses' etc.) in sympathy.

As at 30 June, according to page 76, the total aggregate of provisions in relation to certain of the residential mortgate-backed securities investigations/litigation matters was £6.6 billion ($8.5 billion), of which £3.7 billion ($4.75 billion) related to the FHFA case that has now been resolved. Further substantial provisions and costs may be recognised.

Rate-fixing is another source of litigation for the group. In March the US Federal Deposit Insurance Corporation (FDIC), on behalf of 39 failed US banks, issued a claim in the English High Court against RBS, other London Interbank Borrowed Rate (Libor) panel banks and the British Bankers’ Association, alleging collusion with respect to the setting of USD Libor. Certain members of the RBS group have also, according to page 77 of the 'Interim Results' document, been named as defendants in class actions relating to Euribor, Swiss Franc Libor, Pound sterling Libor, the Singapore Interbank Offered Rate and Singapore Swap Offer Rate, and the Australian Bank Bill Swap Reference Rate, all of which are pending in the United States. Group members are also defendants in two class actions relating to Japanese Yen Libor and Euroyen Tibor (Tokyo Interbank Offered Rate). The group is also the subject of much 'antitrust' (competition) legislation in the US.

CPDOs

Claims were served on RBS NV in England, Holland and Australia, relating to the sale of a type of structured financial product known as a constant proportion debt obligation (CPDO). The claims were settled in April.

Interest rate hedging products

RBS is dealing with a large number of active litigation claims in relation to the sale of interest rate hedging products (IRHPs). In general, it says on page 80, claimants allege that the relevant interest rate hedging products were mis-sold to them, with some also alleging that RBS made misrepresentations in relation to Libor. Claims have been made by customers who were considered under the FCA redress programme, as well as customers who fell outside the scope of that programme, which was closed to new entrants on 31 March 2015. RBS encouraged those customers who were eligible to seek redress under the FCA redress programme to participate in that programme. RBS remains exposed to potential claims from customers who were either ineligible to be considered for redress or who are dissatisfied with their offers of redress.

Since 2013, according to page 84, RBS and other banks have been undertaking a redress exercise and past business review in relation to the sale of interest rate hedging products to some small and medium-sized businesses classified as retail clients or private customers under FSA rules (and hence of interest to our readers). This exercise was scrutinised by an independent reviewer, KPMG (appointed as a 'skilled person' under s166), and overseen by the FCA. RBS has reached agreement with KPMG in relation to 'redress determinations' for all relevant customers, as well as the majority of the consequential loss claims that people made. RBS provisions in relation to these 'redress exercises' come to £1½ billion to date for these matters; virtually all provisions had been used up by 30 June.

Irish eyes not smiling

Other regulatory titbits in the report include news on page 90 of an investigation that the Central Bank of Ireland is conducting into RBS Group's subsidiary, Ulster Bank Ireland. In December 2015, the regulator announced that it had asked some banks to look into some mortgages that they had sold with tracker interest rates or with tracker interest rate entitlements, hoping to spot cases where they had not fully honoured customers’ contractual rights under the terms of their mortgage agreements, or where they had flouted regulations.

The CBI required Ulster Bank to participate in this review. RBS made a provision totalling €211 million (£191 million) in 2016 for this matter.

In April 2016, the central bank also began a separate investigation of Ulster Bank to do with suspected breaches of the Consumer Protection Code 2006 between August 2006 and June 2008 in relation to certain customers who switched from tracker mortgages to fixed-rate mortgages.