RBS 2008 Annual Report Download - page 253

RBS Group Annual Report and Accounts 2008252
Notes on the accounts continuedNotes on the accounts continued
32 Memorandum items (continued)
for repayment of any remaining principal outstanding (after recoveries)
on the borrowings be agreed between the FSCS and HM Treasury. It is
expected that, from that point, the FSCS will begin to raise compensation
levies (principal repayments). No provision has been made for these
levies as the amount is not yet known and is unlikely to be determined
before 2011.
The Group has accrued £150 million for its share of FSCS management
expenses levies for the 2008/9 and 2009/10 scheme years.
Investigations
The Group’s businesses and financial condition can be affected by the
fiscal or other policies and other actions of various governmental and
regulatory authorities in the United Kingdom, the European Union, the
United States and elsewhere.
The Group has engaged, and will continue to engage, in discussions
with relevant regulators, including in the United Kingdom and the United
States, on an ongoing and regular basis informing them of operational,
systems and control evaluations and issues as deemed appropriate or
required and it is possible that any matters discussed or identified may
result in investigatory actions by the regulators, increased costs being
incurred by the Group, remediation of systems and controls, public or
private censure or fines. Any of these events or circumstances could
have a material adverse impact on the Group its business, reputation,
results of operations or share price.
There is continuing political and regulatory scrutiny of the operation of
the retail banking and consumer credit industries in the United Kingdom
and elsewhere. The nature and impact of future changes in policies and
regulatory action are not predictable and are beyond the Group’s
control but could have an adverse impact on the Group’s businesses
and earnings.
European Union
In the European Union, regulatory actions included an inquiry into retail
banking in all of the then 25 member states by the European
Commission’s Directorate General for Competition. The inquiry
examined retail banking in Europe generally. On 31 January 2007, the
European Commission announced that barriers to competition in certain
areas of retail banking, payment cards and payment systems in the
European Union had been identified. The European Commission
indicated that it will consider using its powers to address these barriers
and will encourage national competition authorities to enforce European
and national competition laws where appropriate.
In 2007, the European Commission issued a decision that, while
interchange is not illegal per se, MasterCard’s current multilateral
interchange fee (MIF) arrangement for cross border payment card
transactions with MasterCard and Maestro-branded consumer credit
and debit cards in the European Union are in breach of competition law.
MasterCard was required by the decision to withdraw the relevant cross
border MIFs by 21 June 2008. MasterCard lodged an appeal against
the decision with the European Court of First Instance on 1 March 2008,
and on 12 June 2008 it announced that it would be temporarily
withdrawing its cross border MIF, pending the outcome of the appeal.
The Group has been granted leave to intervene in the appeal
proceedings. Visa’s MIFs were exempted in 2002 by the European
Commission for a period of five years up to 31 December 2007 subject
to certain conditions. On 26 March 2008, the European Commission
opened a formal inquiry into Visa’s current MIF arrangements for cross
border payment card transactions with Visa-branded debit and
consumer credit cards in the European Union. There is no deadline for
the closure of the inquiry.
United Kingdom
In the United Kingdom, in September 2005, the Office of Fair Trading
(OFT) received a super-complaint from the Citizens Advice Bureau
relating to payment protection insurance (PPI). As a result, the OFT
commenced a market study on PPI in April 2006. In October 2006, the
OFT announced the outcome of the market study and, on 7 February
2007, following a period of consultation, the OFT referred the PPI
market to the Competition Commission (CC) for an in-depth inquiry. The
CC published its final report on 29 January 2009. It found a lack of
competition in the PPI market as a result of various factors, including a
lack of transparency and barriers to entry for standalone providers. The
CC will therefore impose by Order a range of remedies, including a
prohibition on actively selling PPI at point of sale of the credit product
(and for 7 days thereafter), a ban on single premium policies and other
measures to increase transparency (in order to improve customers’
ability to search and improve price competition). The deadline for
implementation will be 2010.
The FSA has been conducting a broad industry thematic review of PPI
sales practices and in September 2008 announced that it intends to
escalate its level of regulatory intervention. The FSA is expected to
publish a further update in 2009. Substantial numbers of customer
complaints alleging the mis-selling of PPI policies have been made to
banks and to the Financial Ombudsman Service (FOS) and many of
these are being upheld by the FOS against the banks. Discussions
continue between the FSA, the FOS and industry bodies on how best to
handle these complaints. Separately, discussions are ongoing between
the FSA and the Group in respect of concerns expressed by the FSA
over certain categories of historic PPI sales.
The OFT has carried out investigations into Visa and MasterCard
domestic credit card interchange rates. The decision by the OFT in the
MasterCard interchange case was set aside by the Competition
Appeals Tribunal in June 2006. The OFT’s investigations in the Visa
interchange case and a second MasterCard interchange case are
ongoing. The outcome is not known, but these investigations may have
an impact on the consumer credit industry in general and, therefore, on
the Group’s business in this sector. On 9 February 2007, the OFT
announced that it was expanding its investigation into domestic
interchange rates to include debit cards.
On 29 March 2007, the OFT announced that, following an initial review
into bank current account charges, it had decided to conduct a market
study into personal current accounts in the United Kingdom and a
formal investigation into the fairness of bank current account charges.