RBS 2012 Annual Report Download - page 433

RBS GROUP 2012
431
(2) In June 2012, following an industry wide review, the FSA announced that the Group and other UK banks had agreed to:
- provide automatically fair and reasonable redress to non-sophisticated customers who were sold structured collars;
- review the sales of interest rate hedging products (other than caps or structured collars) to non-sophisticated customers to determine whether
redress is due; and
- review the sale of caps to non-sophisticated customers to determine whether redress is due if a complaint is made by the customer during the
review.
On 31 January 2013, the FSA announced the results of pilot studies by the Group and other UK banks. The FSA announcement also clarified the
tests to be applied to determine whether a customer qualifies as ‘sophisticated’ and created a set of redress principles.
The Group has estimated £700 million for its liability based on the FSA’s guidance, an analysis of its portfolio of interest rate hedging products and
the results of the pilot exercise. The provision includes redress that will be paid to customers, interest payable on customer redress: the cost to the
Group of exiting the hedging positions; and the cost of undertaking the review.
The principal assumptions that underlie the estimate are: the number of transactions that meet the criteria for redress; the nature of the redress; in
particular whether a product is terminated or replaced with an alternative product and/or a different profile; and the cost of the review.
The table below shows the sensitivity of the provision to changes in the principal assumptions (all other assumptions remaining the same).
Sensitivity
Assumption
Change in
assumption
%
Consequential
change in provision
£m
Number of customer transactions qualifying for redress (i) +/-5 +/-29
Proportion of customer transactions qualifying for full redress (i) +/-5 +/-42
(i) Customers qualifying for an alternative product reduced/increased pro rata.
As the redress and review exercise progresses it is likely that the level of the provision will change. There remain significant uncertainties over the
number of transactions that will qualify for redress and the nature and cost of that redress.
(3) The Group has provided for customer redress in relation to certain other retail products. None of these provisions is individually material.
(4) On 6 February 2013, the Group reached agreement with the FSA, the US Department of Justice and the Commodity Futures Trading Commission in
relation to the setting of LIBOR and other trading rates, including financial penalties of £381 million. The Group continues to cooperate with other
governmental and regulatory authorities and the probable outcome of these investigations is that the Group will incur additional financial penalties.
However, at this early stage, the Group is unable reliably to estimate their quantum.
(5) The Group is subject to a number of investigations by regulatory and other authorities. Details of these investigations and a discussion of the nature
of the associated uncertainties are given in Note 32.
(6) Arising out of its normal business operations, the Group is party to legal proceedings in the United Kingdom, the United States and other
jurisdictions. Litigation provisions at 31 December 2012 related to numerous proceedings; no individual provision is material. Detailed descriptions of
the Group’s legal proceedings and discussion of the associated uncertainties are given in Note 32.
(7) In June 2012, the Group experienced a technology incident that affected its transaction batch processing. Provisions of £175 million were charged
during 2012 to meet the waiver of fees and interest; redress for customers of the Group; and other costs principally staff costs. These costs have
been substantially settled and there is minimal uncertainty as to the final cost.
(8) The property provisions principally comprise provisions for onerous lease contracts. Provision is made for future rentals payable in respect of vacant
leasehold property and for any shortfall where leased property is sub-let at a rental lower than the lease rentals payable by the Group.