RBS 2010 Annual Report Download - page 373

On 22 December 2009, the OFT published a further report in which it
stated that it continued to have significant concerns about the operation
of the personal current account market in the United Kingdom, in
particular in relation to unarranged overdrafts, and that it believed that
fundamental changes are required for the market to work in the best
interests of bank customers. The OFT stated that it would discuss these
issues intensively with banks, consumer groups and other organisations,
with the aim of reporting on progress by the end of March 2010. On 16
March 2010, the OFT announced that it had secured agreement from the
banks on four industry-wide initiatives, namely minimum standards on the
operation of opt-outs from unarranged overdrafts, new working groups on
information sharing with customers, best practice for PCA customers in
financial difficulties and incurring charges, and PCA providers to publish
their policies on dealing with PCA customers in financial difficulties. The
OFT also announced its plan to conduct six-monthly ongoing reviews, to
fully review the market again in 2012 and to undertake a brief analysis on
barriers to entry. The first six-monthly ongoing review was completed in
September 2010. The OFT noted progress in the areas of switching,
transparency and unarranged overdrafts for the period March to
September 2010, as well as highlighting further changes the OFT expects
to see in the market. The next progress report is expected to be
published by the OFT in March 2011.
On 26 May 2010, the OFT announced its review of barriers to entry. The
review concerns retail banking for individuals and small and medium size
enterprises (up to £25 million turnover) and will look at products which
require a banking licence to sell mortgages, loan products and, where
appropriate, other products such as insurance or credit cards where
cross-selling may facilitate entry or expansion. The OFT published its
report in November 2010. It advised that it expected its review to be
relevant to the Independent Commission on Banking, the FSA, HM
Treasury and the Department for Business, Innovation and Skills and to
the devolved governments in the United Kingdom. The OFT has not
indicated whether it will undertake any further work. The report
maintained that barriers to entry remain, in particular regarding switching,
branch networks and brands. At this stage, it is not possible to estimate
the effect of the OFT’s report and recommendations regarding barriers to
entry upon RBS Group.
Equity underwriting
On 10 June 2010, the OFT announced its intention to conduct a market
study into equity underwriting and related services and sought views on
scope by 9 July 2010. The OFT study was formally launched on 6 August
2010. The OFT undertook to examine the underwriting services for the
different types of share issue used by FTSE 350 firms to raise capital in
the UK including rights issues, placings and follow-on offers but excluding
initial public offerings. The OFT has been looking at the way that the
market works and the following three key issues: (i) how underwriting
services are purchased; (ii) how underwriting services are provided; and
(iii) how the regulatory environment affects the provision of underwriting
services. The OFT published its report on 27 January 2011 identifying
certain concerns around the level of equity underwriting fees. The OFT
has identified a number of options which would enable companies and
institutional shareholders to address these concerns and allow them to
drive greater competition in the market. It is currently consulting on its
provisional decision not to refer the market to the CC. RBS Group is
engaged in the OFT market study and it is not possible to estimate with
any certainty what effect this study and any related developments may
have on RBS Group, its business or results of operations.
Independent Commission on Banking
On 16 June 2010, HM Treasury published the terms of reference for the
Government’s Independent Commission on Banking (ICB). The ICB is
considering the structure of the United Kingdom banking sector and is
looking at structural and non-structural measures to reform the banking
system and to promote competition. It is mandated to formulate policy
recommendations with a view to: (i) reducing systemic risk in the banking
sector, exploring the risk posed by banks of different size, scale and
function; (ii) mitigating moral hazard in the banking system; (iii) reducing
the likelihood and impact of a bank’s failure; and (iv) promoting
competition in retail and investment banking with a view to ensuring that
the needs of banks’ customers are served efficiently and considering the
extent to which large banks can gain competitive advantage from being
perceived as “too big to fail”.
The ICB reports to the Cabinet Committee on Banking Reform and is
required to produce a final report by the end of September 2011. RBS
Group has responded to the call for evidence by the ICB. In addition it
has attended a private hearing, as well as public hearings in Edinburgh
and Cardiff in December 2010. An issues paper by the ICB is expected in
spring 2011. At this stage it is not possible to estimate the effect of the
ICB’s report and recommendations upon RBS Group, if any.
US dollar clearing activities
In May2010, following a criminal investigation by the United States
Department of Justice (DoJ) into its dollar clearing activities, Office of
Foreign Assets Control compliance procedures and other Bank Secrecy
Act compliance matters, RBS NV formally entered into a Deferred
Prosecution Agreement (DPA) with the DoJ resolving the investigation.
The investigation was in relation to activities before the Consortium
Members acquired ABN AMRO Holding N.V. (now known as RBS
Holdings N.V.). The agreement was signed by RBS NV and is binding on
that entity and its subsidiaries. Pursuant to the DPA, RBS NV paid a
penalty of US$500 million and agreed that it will comply with the terms of
the DPA and continue to co-operate fully with any further investigations.
Payment of the penalty was made from a provision established in April
2007 when an agreement in principle to settle was first announced. Upon
satisfaction of the conditions of the DPA for the period of 12 months from
May 2010, the matter will be fully resolved. Failure to comply with the
terms of the DPA during the 12 month period could result in the DoJ
recommencing its investigations, the outcome of which would be
uncertain and could result in public censure and fines or have an adverse
effect on RBS Holdings N.V.’s operations, any of which could have a
material adverse effect on its business, reputation, results of operation
and financial condition.
371RBS Group 2010
Financial statements