RBS skilled person report – fascinating stand-off between Nicky Morgan and Andrew Bailey
The interesting RBS related stand-off between Nicky Morgan chair of the Commons Treasury select committee and Andrew Bailey at the FCA is set to come to a head this week.
Mrs Morgan believes, rightly, that she is being obstructed by the FCA in their refusal to handover the contentious s166 report by the “skilled person” (“SP”) Promontory Financial Group (UK) Ltd, concerning alleged mistreatment of small businesses in the wake of the financial crisis by RBS.
The SP regime was understandably conceived to alleviate the investigative workload for the FCA. The cost of an s166 report is met by the subject company who is the obligatory “client” of the skilled person. The cost for the initial review for a small firm might be between £150 and £200k. The subject company may have some flexibility of choice of SP consultant.
However, the real client is the FCA and the subject company by enlarge, must accept the arrangement of the investigation. It is commercially in the interest of the SP to be as critical as possible because depending on how the FCA responds to the report, there may be a follow up visit, possibly costing at least an additional 30% of the original amount, to establish if the improvements recommended by the FCA have taken place. And, perceptually, a consultant may believe that a strongly worded critical report may well encourage the FCA to look favourably on it for SP work in the future.
It is my guess that the s166 report, conducted four years ago, by Promontory, an IBM consultancy that opened in the UK in 2006, that currently has 25 employees in London, of which seven are managing directors and Sir Callum McCarthy, an ex-chairman of the FSA is the Non-Director Chairman, may contain insufficiently guarded language for the public domain or indeed sharp political focus for which it is not designed. This report might include identification and or criticism of individuals or groupings that work within RBS and might be described, for the purpose of this blog, as at a “pre-Maxwellisation” stage. According to the FT, RBS had also told the FCA it was unhappy with parts of Promontory’s findings. I imagine that there may also be tension between the FCA and Promontory about the language because it is now much nearer the spotlight.
There are some ironies in this case in that Sir Howard Davies, the chairman of RBS was the original Chairman of the FSA until 2003 when Sir Callum took over.
The emergence of “political pressure” as a new accelerant ingredient where nothing this powerful has existed previously is very welcome opportunity to bring much needed focus on how long it takes FCA enforcement to reach a formal accusation of wrongdoing. Understandably, most firms like to settle by accepting a Final Notice and punishment to move the matter forwards and get on with their business, usually after at least two years and this is when the maxwellisation snag appears. Until now the FCA appear to also have used delay and uncertainty as a weapon against firms and individuals, to encourage settlement. The RBS case is no doubt complex and drawn out.
Mrs Morgan is calling for the law to be changed to accelerate Maxwellisation, but this would be again at the expense of possibly innocent individuals working in Financial Services. In particular, after the surprise Macris Supreme Court verdict narrowed the recognition criteria, this would be a further move against individual rights under FSMA 2000. She should be demanding that the FCA conduct the entire process with more urgency under much tighter deadlines to reach conclusions.
I am not suggesting that wrongdoing or oversight failures by RBS employees should go unpunished but I believe that rules for the protection of individuals working in Financial Services which are clearly laid out in FSMA 2000 should also be adhered to, particularly if the SP report is over simplistic.
Let’s watch and see what happens as the arm wrestle between Mrs Morgan, and Andrew Bailey really gets under way this week. My guess is that the report will be handed over but redacted for Maxwellisation because of the mountainous legal threat from individuals to the FCA.
12th February 2018