Know Your Customer
5 ways the RBS GRG report highlighted poor SME customer service
The fallout from the RBS GRG report by Promontory and its evidence of customer neglect has drawn criticism of RBS’s business customer service. Here Lorenzo Migliorato lists five key areas where the business failed its SME clients.
The regulatory investigation over RBS’s Global Restructuring Unit has attracted a level of media coverage not seen since the state bailouts of the 2008 crisis. Its legacy is set to be long-lasting, starting with the Financial Conduct Authority’s (FCA) intention to expand the tools SMEs can resort to if they have a grievance with finance providers. Regulation will get more encompassing in the future, but now that the RBS report is publicly available, what are the errors that RBS made – and that should be avoided from now on?
1. Short heads-up on cashflow restrictions
In one of the cases examined by Promontory, the financial services consultancy tasked by the FCA with the review of practices within GRG, an SME customer had access to a £2m invoice finance facility, of which they had drawn down around half. The business then experienced some difficulties and RBS started an internal business review (RBS).
Shortly afterwards, before the review was complete, RBS restricted the invoice finance facility to just £250,000, giving less than 28 days’ notice. After the accountants undertaking the IBR exercised pressure, the bank agreed to temporarily raise the facility’s limit again, and the customer eventually obtained a facility from another provider. However, Promontory concluded that “the withdrawal of a facility of this size and in these circumstances was unreasonable”.
“We observed GRG pursuing its objective of reducing facility levels with insufficient regard for the impact its decisions had on customers,” Promontory added. “It was clear that the overriding objective in respect of facilities was to reduce the bank’s exposure”.
2. Obfuscating record keeping
Although GRG submitted a high number of pricing proposals to customers – the frequency of which struck Promontory – these were not supported by paper trails showing how prices had been arrived at. This was despite 2011 guidance from RBS telling GRG: “It is important that wherever a fee is to be charged, the file shows a clear paper trail evidencing the rationale for both the charging of the fee itself and its amount.” The guidance added that the decision-making paper trail “may be disclosable in the event of a claim against the bank”. In fact, during recent parliamentary hearings on the GRG case, executives would say that pricing was often done “in one’s head”.
Scattered and incomplete records subsequently had an impact on the time and effort that Promontory had to put in compiling their report. Ultimately, Promontory said that although they did not think RBS had withheld critical documents that would have altered the report’s conclusion, Promontory could not exclude that the bank had at times limited itself to “narrow compliance” with material requests.
3. Income before customer viability
An internal GRG memo, titled “Just Hit Budget”, contains a guide on “how to get a customer to agree chunky fees and upsides and thank you for it”. Other emails and memos show a focus on “deals” and “transactions” as the measure of success within GRG. Promontory said that there was “scant evidence that turnaround options were considered at the initial assessment of the case. Instead, the first consideration was the amount of additional income that could be generated from the customer”.
Promontory concluded that the “Just Hit Budget” memo reflected the wider “deal making culture” within GRG at the time, which focused “on the financial interests of GRG, [and] placed little weight on the stated turnaround objective of GRG, and less still on the fair treatment of customers”.
4. Forbearance was rare
Promontory said the discretions RBS had in setting contractual provisions, coupled with the decisional freedom GRG staff had, gave the bank “flexibility to exercise forbearance in the right circumstances”. It added that the discretional ability to advance more money, on the basis of new terms for facilities if needed, was essential to a turnaround unit. The bank itself was reported as telling Promontory that “GRG has the ability to make decision outside mainstream credit and risk appetite, including lending new money and right-sizing debt when appropriate”, adding that forbearance had been applied “extensively” to allow customers breathing room.
However, Promontory found “few cases in our sample where the bank offered new additional money”, and said that although there had been cases where RBS had exercised forbearance, “our findings of inappropriate treatment of customers in this area arise from failings by the bank to exercise forbearance when it would have been fair and reasonable to do so ... The failure to exercise forbearance, in circumstances where it would have been appropriate, occurred on a scale that was widespread”.
5. A lack of trust on part of customers
A GRG survey on customer satisfaction in 2013 found that “customers do not understand why they were transferred to GRG or they are not convinced that they should have been … They feel poorly treated, bullied, threatened often exploited”.
Promontory concluded that, as a result of a failure to balance GRG’s commercial interest and its stated business turnaround aim, “the expectations of customers were not appropriately managed”. Despite GRG presenting itself as a division that would help customers to emerge from financial difficulties, “the reality was very different. The failure to appropriately manage expectations has, in our view, given rise to many of the expressions of dissatisfaction that have been made about GRG”.