RBS 2012 Annual Report Download - page 459

RBS GROUP 2012
457
Unarranged overdraft charges
RBS Citizens Financial Group, Inc (RBS Citizens) and its affiliates were
among more than thirty banks named as defendants in US class action
lawsuits alleging that the manner in which defendant banks posted
transactions to consumer accounts caused customers to incur excessive
overdraft fees. The complaints against RBS Citizens, which concern the
period between 2002 and 2010 and were consolidated into one case,
alleged that this conduct violated its duty of good faith and fair dealing,
was unconscionable and constituted an unfair trade practice and a
conversion of customers' funds. RBS Citizens has agreed to settle this
matter for US$137.5 million and, as a result, the matter has been stayed.
The Group has made a one-time payment of the settlement amount into a
settlement fund which, upon final approval of the settlement, will be used
to make payments to class members. A motion for final approval of the
settlement was filed on 10 January 2013. If the settlement is given final
approval by the United States District Court for the Southern District of
Florida, consumers who do not opt out of the settlement will be deemed
to have released any claims related to the allegations in the lawsuits.
Summary of other disputes, legal proceedings and litigation
In addition to the matters described above, members of the Group are
engaged in other disputes and legal proceedings in the United Kingdom
and a number of overseas jurisdictions, including the United States,
involving claims by and against them arising in the ordinary course of
business. The Group has reviewed these other actual, threatened and
known potential claims and proceedings and, after consulting with its
legal advisers, does not expect that the outcome of any of these other
claims and proceedings will have a material adverse effect on the
Group’s consolidated net assets, operating results or cash flows in any
particular period.
Investigations and reviews
The Group’s businesses and financial condition can be affected by the
fiscal or other policies and 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 governmental and regulatory
authorities, including in the United Kingdom and the United States, on an
ongoing and regular basis regarding operational, systems and control
evaluations and issues including those related to compliance with
applicable anti-bribery, anti-money laundering and sanctions regimes. It
is possible that any matters discussed or identified may result in
investigatory or other action being taken by governmental and regulatory
authorities, increased costs being incurred by the Group, remediation of
systems and controls, public or private censure, restriction of the Group’s
business activities or fines. Any of these events or circumstances could
have a material adverse effect on the Group, its business, authorisations
and licences, reputation, results of operations or the price of securities
issued by it.
Political and regulatory scrutiny of the operation of retail banking and
consumer credit industries in the United Kingdom, United States and
elsewhere continues. The nature and impact of future changes in policies
and regulatory action are not predictable and are beyond the Group’s
control.
The Group is co-operating fully with the investigations and reviews
described below.
LIBOR and other trading rates
On 6 February 2013 the Group announced settlements with the Financial
Services Authority in the United Kingdom, the United States Commodity
Futures Trading Commission and the United States Department of
Justice (DOJ) in relation to investigations into submissions,
communications and procedures around the setting of the London
Interbank Offered Rate (LIBOR). RBS agreed to pay penalties of £87.5
million, US$325 million and US$150 million to these authorities
respectively to resolve the investigations. As part of the agreement with
the DOJ, RBS plc entered into a Deferred Prosecution Agreement in
relation to one count of wire fraud relating to Swiss Franc LIBOR and one
count for an antitrust violation relating to Yen LIBOR. RBS Securities
Japan Limited agreed to enter a plea of guilty to one count of wire fraud
relating to Yen LIBOR. The Group continues to co-operate with
investigations by these and various other governmental and regulatory
authorities, including in the US and Asia, into its submissions,
communications and procedures relating to the setting of LIBOR and
other trading rates. The Group is also under investigation by competition
authorities in a number of jurisdictions, including the European
Commission and Canadian Competition Bureau, stemming from the
actions of certain individuals in the setting of LIBOR and other trading
rates, as well as interest rate-related trading. The Group is also co-
operating with these investigations.
It is not possible to estimate reliably what effect the outcome of these
remaining investigations, any regulatory findings and any related
developments may have on the Group, including the timing and amount
of further fines, sanctions or settlements, which may be material.
Technology incident
On 19 June 2012 the Group was affected by a technology incident, as a
result of which the processing of certain customer accounts and
payments were subject to considerable delay. The cause of the incident
has been investigated by independent external counsel with the
assistance of third party advisors. The Group has agreed to reimburse
customers for any loss suffered as a result of the incident. The Group
provided £175 million in 2012 for this matter. Additional costs may arise
once all redress and business disruption items are clear.
The incident, the Group's handling of the incident and the systems and
controls surrounding the processes affected, are the subject of regulatory
enquiries (both from the UK and Ireland) and the Group could become a
party to litigation. In particular, the Group could face legal claims from
those whose accounts were affected and could itself have claims against
third parties.