RBS 2011 Annual Report Download - page 408

406 RBS Group 2011
32 Memorandum items continued
Litigation and Investigations continued
Private motor insurance
On 14 December 2011, the OFT launched a market study into private
motor insurance, with a focus on the provision of third party vehicle
repairs and credit hire replacement vehicles to claimants. The OFT aims
to complete its market study by spring 2012. At this stage, it is not
possible to estimate with any certainty the effect the market study and
any related developments may have on the Group.
Independent Commission on Banking
Following an interim report published on 11 April 2011, the ICB published
its final report to the Cabinet Committee on Banking Reform on 12
September 2011 (the “Final Report”). The Final Report makes a number
of recommendations, including in relation to (i) the implementation of a
ring-fence of retail banking operations, (ii) loss-absorbency (including
bail-in) and (iii) competition.
On 19 December 2011 the UK Government published a response to the
Final Report (the “Response”), reaffirming its intention to accept the
majority of the ICB’s recommendations. The Government agreed that
“vital banking services - in particular the taking of retail deposits – should
only be provided by ‘ring-fenced banks’, and that these banks should be
prohibited from undertaking certain investment banking activities.” It also
broadly accepted the ICB’s recommendations on loss absorbency and on
competition.
The UK Government has now embarked on an extensive consultation on
how exactly the general principles outlined by the ICB should be
implemented, and intends to bring forward a White Paper in the spring of
2012. Its intention is to complete primary and secondary legislation
before the end of the current Parliamentary term in May 2015 and to
implement the ring-fencing measures as soon as practicable thereafter
and the loss absorbency measures by 2019. The Government also stated
its determination that changes to the account switching process should
be completed by September 2013, as already scheduled.
With regard to the competition aspects, the Government recommended a
number of initiatives aimed at improving transparency and switching in
the market and ensuring a level playing field for new entrants. In addition,
the Government has recommended that HM Treasury should consult on
regulating the UK Payments Council and has confirmed that the Financial
Conduct Authority's remit will include competition.
Until the UK Government consultation is concluded and significantly more
detail is known on how the precise legislative and regulatory framework is
to be implemented it is impossible to estimate the potential impact of
these measures with any level of precision.
The Group will continue to participate in the debate and to consult with
the UK Government on the implementation of the recommendations set
out in the Final Report and the Response, the effects of which could have
anegative impact on the Group’s consolidated net assets, operating
results or cash flows in any particular period.
US dollar clearing activities
In May 2010, 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 N.V. formally entered into a Deferred
Prosecution Agreement (DPA) with the DoJ resolving the investigation.
Pursuant to the DPA, RBS N.V. paid a penalty of US$500 million in 2010
and agreed to comply with the terms of the DPA and 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. On 20 December 2011, the DoJ filed a
motion with the US District Court to dismiss the criminal information
underlying the DPA, stating that RBS N.V. had met the terms and
obligations of the DPA. The US District Court granted the DoJ’s motion
on the same day, and this matter is now fully resolved.
Securitisation and collateralised debt obligation business
In the United States, the Group is also involved in other reviews,
investigations and proceedings (both formal and informal) by federal and
state governmental law enforcement and other agencies and self-
regulatory organisations relating to, among other things, mortgage-
backed securities, collateralised debt obligations (CDOs), and synthetic
products. In connection with these inquiries, Group companies have
received requests for information and subpoenas seeking information
about, among other things, the structuring of CDOs, financing to loan
originators, purchase of whole loans, sponsorship and underwriting of
securitisations, due diligence, representations and warranties,
communications with ratings agencies, disclosure to investors, document
deficiencies, and repurchase requests.
By way of example, in September and October 2010, the SEC requested
voluntary production of information concerning residential mortgage-
backed securities underwritten by subsidiaries of RBSG during the period
from September 2006 to July 2007 inclusive. In November 2010, the SEC
commenced a formal investigation and requested testimony from a
former Group employee. The investigation is in its preliminary stages and
it is difficult to predict any potential exposure that may result.
Notes on the consolidated accounts continued