Finance · 8 November 2016

RBS announces £400m compensation fund for small businesses

Claims against RBS practices were first made in 2014

Royal Bank of Scotland (RBS) has set aside a compensation fund worth £400m that it hopes will end the small business restructuring scandal that has plagued the bank since 2014. 

The fund was announced by RBS after it received the findings of an ongoing review, commissioned by the Financial Conduct Authority (FCA), into the bank’s practices through its now-defunct business restructuring programme, the Global Restructuring Group (GRG).

Claims against the bank first arose in 2014 after a report concluded that the GRG deliberately pushed small businesses to the brink of financial collapse.

The GRG was set up as the bank’s turnaround division to help restructure struggling businesses, and the initial report – conducted by former government advisor Lawrence Tomlinson – claimed that the owners of small firms were being poorly advised so that RBS could buy out their business premises for financial gain.

The long-awaited FCA report – a “complex and lengthy review”, according to the organisation – recognised that while “isolated examples of poor practice” were present in the GRG programme, “RBS did not artificially engineer a position” in which small businesses were forced to fold.

Around 140 companies, with legal representation from the RGL Management Group, are seeking damages from RBS. The average claim against the bank is reported to sit between £6m and £7m – totalling £1bn.

Alongside the new compensation fund, RBS has announced a third-party complaints review process to be overseen by ex-High Court judge Sir William Blackbourne.

Voices representing the small business community have spoken out in support of small companies affected by the programme.

Commenting on the compensation scheme, Mike Cherry, national chairman of the Federation of Small Businesses (FSB), stated that affected companies “deserve an apology from RBS”, and hinted the organisation would be ready to scrutinise the compensation process.

“We have now been contacted by RBS about their plan, which we will study. While we welcome any moves to recompense businesses, RBS still has considerable work to do if it’s to regain the trust of the small business community,” he said in a statement.

Cherry also stated that the organisation would be ready to protect the interests of small businesses from similar schemes in future.

He said: “FSB will also be engaging with the FCA to see what independent action it will be taking to ensure this sort of mistreatment of small business customers does not happen again.”

Labour MP John Mann – a member of the Treasury’s select committee that has investigated the alleged misconduct by the bank – stated that the £400m compensation fund “simply isn’t enough”.

“We the taxpayers and part owners of RBS along with their customers need to know why this was allowed to happen,” he said in a statement.

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Praseeda Nair is the editorial director of Business Advice, and its sister publication for growing businesses, Real Business. She's an impassioned advocate for women in leadership, and likes to profile business owners, advisors and experts in the field of entrepreneurship and management.

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