RBS 2013 Annual Report Download - page 482
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Notes on the consolidated accounts
480
32 Memorandum items continued
On 13 July 2012, the OFT launched its planned full review of the PCA
market. The review was intended to consider whether the initiatives
agreed by the OFT with banks to date have been successful and whether
the market should be referred to the Competition Commission (CC) for a
fuller market investigation.
The OFT’s PCA report was published on 25 January 2013. The OFT
acknowledged some specific improvements in the market since its last
review but concluded that further changes are required to tackle ongoing
concerns, including a lack of switching, the ability of consumers to
compare products and the complexity of overdraft charges. However, the
OFT recognised at the time it published the report that a number of major
developments were expected over the coming months including
divestment of branches, improvements in account switching and
assistance to customers to compare products and services. Therefore the
OFT decided not to refer the market to the CC but said that it expected to
return to the question of a referral to the CC in 2015, or before. The OFT
also announced that it will be carrying out behavioural economic research
on the way consumers make decisions and engage with retail banking
service, and will study the operation of payment systems as well as the
SME banking market.
SME banking market study
The OFT announced its market study on competition in banking for SMEs
in England and Wales, Scotland and Northern Ireland on 19 June 2013.
The OFT has been seeking views on the scope of the market study and
on 27 September 2013 published an update paper setting out its
proposed scope. The OFT expects to report on the market study in early
2014.
Credit default swaps (CDS) investigation
The Group is a party to the EC’s antitrust investigation into the CDS
information market. The Group is co-operating fully with the EC's
investigation and in July 2013 received a Statement of Objections from
the EC. The EC has raised concerns that a number of banks, Markit and
ISDA may have jointly prevented exchanges from entering the CDS
market. At this stage, the Group cannot estimate reliably what effect the
outcome of the investigation may have on the Group, which may be
material.
Securitisation and collateralised debt obligation business
In the United States, the Group is involved in 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, issuance, underwriting and trading in
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, trading activities and repurchase
requests.
On 7 November 2013, the Group announced that it had settled with the
US Securities and Exchange Commission (‘the SEC’) over its
investigation of RBS Securities Inc. relating to due diligence conducted in
connection with a 2007 offering of residential mortgage-backed securities
and corresponding disclosures. Pursuant to the settlement, RBS
Securities Inc., without admitting or denying the SEC's allegations,
consented to the entry of a final judgment ordering certain relief, including
an injunction and the payment of approximately US$153 million in
disgorgement, penalties, and interest. The settlement was subsequently
approved by the United States District Court for the District of
Connecticut. The Group co-operated fully with the SEC throughout the
investigation.
Also in October 2010, the SEC commenced an inquiry into document
deficiencies and repurchase requests with respect to certain
securitisations, and in January 2011, this was converted to a formal
investigation. Among other matters, the investigation seeks information
related to document deficiencies and remedial measures taken with
respect to such deficiencies. The investigation also seeks information
related to early payment defaults and loan repurchase requests.
In 2007, the New York State Attorney General issued subpoenas to a
wide array of participants in the securitisation and securities industry,
focusing on the information underwriters obtained from the independent
firms hired to perform due diligence on mortgages. The Group completed
its production of documents requested by the New York State Attorney
General in 2008, principally producing documents related to loans that
were pooled into one securitisation transaction. In May 2011, at the New
York State Attorney General's request, representatives of the Group
attended an informal meeting to provide additional information about the
Group's mortgage securitisation business. The investigation is ongoing
and the Group continues to provide the requested information.
US mortgages - loan repurchase matters
The Group’s Markets business in North America has been a purchaser of
non-agency US residential mortgages in the secondary market, and an
issuer and underwriter of non-agency residential mortgage-backed
securities (RMBS). Markets did not originate or service any US residential
mortgages and it was not a significant seller of mortgage loans to
government sponsored enterprises (GSEs) (e.g. the Federal National
Mortgage Association and the Federal Home Loan Mortgage
Association).