RBS 2011 Annual Report Download - page 410

408 RBS Group 2011
32 Memorandum items continued
Litigation and Investigations continued
LIBOR
The Group continues to receive requests from various regulators
investigating the setting of LIBOR and other interest rates, including the
US Commodity Futures Trading Commission, the US Department of
Justice, the European Commission, the FSA and the Japanese Financial
Services Agency. The authorities are seeking documents and
communications related to the process and procedures for setting LIBOR
and other interest rates, together with related trading information. In
addition to co-operating with the investigations as described above, the
Group is also keeping relevant regulators informed. It is not possible to
estimate with any certainty what effect these investigations and any
related developments may have on the Group.
Other investigations
The Federal Reserve and state banking supervisors have been reviewing
the Group's US operations and RBSG and its subsidiaries have been
required to make improvements with respect to various matters, including
enterprise-wide governance, US Bank Secrecy Act and anti-money
laundering compliance, risk management and asset quality. The Group is
in the process of implementing measures for matters identified to date.
On 27 July 2011, the Group consented to the issuance of a Cease and
Desist Order (“the Order”) setting forth measures required to address
deficiencies related to governance, risk management and compliance
systems and controls identified by the Federal Reserve and state banking
supervisors during examinations of the RBS plc and RBS N.V. branches
in 2010. The Order requires the Group to strengthen its US corporate
governance structure, to develop an enterprise-wide risk management
programme, and to develop and enhance its programmes to ensure
compliance with US law, particularly the US Bank Secrecy Act and anti-
money laundering laws, rules and regulations. The Group has
established a strategic and remedial programme of change to address
the identified concerns and is committed to working closely with the US
bank regulators to implement the remedial measures required by the
Order.
The Group’s operations include businesses outside the United States that
are responsible for processing US dollar payments. The Group is
conducting a review of its policies, procedures and practices in respect of
such payments and has initiated discussions with UK and US authorities
to discuss its historical compliance with applicable laws and regulations,
including US economic sanctions regulations. Although the Group cannot
currently determine when the review of its operations will be completed or
what the outcome of its discussions with UK and US authorities will be,
the investigation costs, remediation required or liability incurred could
have a material adverse effect on the Group’s consolidated net assets,
operating results or cash flows in any particular period.
The Group may become subject to formal and informal supervisory
actions and may be required by its US banking supervisors to take further
actions and implement additional remedial measures with respect to
these and additional matters. Any limitations or conditions placed on the
Group's activities in the United States, as well as the terms of any
supervisory action applicable to RBSG and its subsidiaries, could have a
material adverse effect on the Group's consolidated net assets, operating
results or cash flows in any particular period.
In April 2009, the FSA notified the Group that it was commencing a
supervisory review of the acquisition of ABN AMRO Holding N.V. in 2007
and the 2008 capital raisings and an investigation into conduct, systems
and controls within the Global Banking & Markets division of the Group.
RBSG and its subsidiaries co-operated fully with this review and
investigation. On 2 December 2010, the FSA confirmed that it had
completed its investigation and had concluded that no enforcement
action, either against the Group or against individuals, was warranted. On
12 December 2011, the FSA published its report ‘The Failure of the Royal
Bank of Scotland’, on which the Group engaged constructively with the
FSA.
In July 2010, the FSA notified the Group that it was commencing an
investigation into the sale by Coutts & Co of the ALICO (American Life
Insurance Company) Premier Access Bond Enhanced Variable Rate
Fund (“EVRF”) to customers between 2001 and 2008 as well as its
subsequent review of those sales. Subsequently on 11 January 2011 the
FSA revised the investigation start date to December 2003.
On 8 November 2011, the FSA published its Final Notice having reached
asettlement with Coutts & Co, under which Coutts & Co agreed to pay a
fine of £6.3 million. The FSA did not make any findings on the suitability
of advice given in individual cases. Nonetheless, Coutts & Co has
agreed to undertake a past business review of its sales of the product.
This review will be overseen by an independent third party and will
consider the advice given to customers invested in the EVRF as at the
date of its suspension, 15 September 2008. For any sales which are
found to be unsuitable, redress will be paid to the customers to ensure
that they have not suffered financially.
On 18 January 2012, the FSA published its Final Notice having reached a
settlement with UK Insurance Limited for breaches of Principle 2 by
Direct Line and Churchill (the "Firms"), under which UK Insurance Limited
agreed to pay a fine of £2.17 million. The Firms were found to have
acted without due skill, care and diligence in the way that they responded
to the FSA's request to provide it with a sample of their closed complaint
files. The Firms' breaches of Principle 2 did not result in any customer
detriment.
During March 2008, the Group was advised by the SEC that it had
commenced a non-public, formal investigation relating to the Group’s
United States sub-prime securities exposures and United States
residential mortgage exposures. In December 2010, the SEC contacted
the Group and indicated that it would also examine valuations of various
RBS N.V. structured products, including CDOs.
Notes on the consolidated accounts continued