RBS 2014 Annual Report Download - page 118

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RBS – Interim Results 2015
Notes
16. Litigation, investigations and reviews (continued)
These ongoing matters include, among others, active investigations by the civil and criminal divisions of the
DOJ and the office of the attorney general of Connecticut, relating primarily to due diligence on loans
purchased for, or otherwise included in, securitisations and related disclosures. RBS Securities Inc. was
recently informed that the Connecticut Department of Banking has authorised the attorney general of
Connecticut to issue notices concerning a possible administrative proceeding against RBS Securities Inc.,
which proceeding could seek civil monetary penalties and restitution for alleged violations of Connecticut
law, among other remedies. RBS Securities Inc. will have the opportunity to respond setting out its position
as to why the Department of Banking should not commence legal proceedings against it. The investigations
also include civil and criminal investigations relating to alleged misrepresentations in the trading of various
forms of asset-backed securities, including residential mortgage-backed securities, commercial mortgage-
backed securities, CDOs, and CLOs. In March 2015, a former RBS Securities Inc. trader pled guilty in the
United States District Court for the District of Connecticut to one count of conspiracy to commit securities
fraud while employed at RBS Securities Inc.
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. RBS 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, the New York State Attorney General
requested additional information about RBS’s mortgage securitisation business and, following the formation
of the RMBS Working Group, has focused on the same or similar issues as the other state and federal
RMBS Working Group investigations described above. The investigation is ongoing and RBS continues to
respond to requests for information.
At this stage, as there remains considerable uncertainty around the outcome of RMBS related regulatory and
governmental investigations it is not practicable reliably to estimate the aggregate potential impact on RBS
which is expected to be material.
US mortgages - loan repurchase matters
RBS’s CIB 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). CIB 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).
In issuing RMBS, CIB generally assigned certain representations and warranties regarding the
characteristics of the underlying loans made by the originator of the residential mortgages; however, in some
circumstances, CIB made such representations and warranties itself. Where CIB has given those or other
representations and warranties (whether relating to underlying loans or otherwise), CIB may be contractually
required to repurchase such loans or indemnify certain parties against losses for certain breaches of such
representations and warranties. In certain instances where it is required to repurchase loans or related
securities, CIB may be able to assert claims against third parties who provided representations or warranties
to CIB when selling loans to it, although the ability to recover against such parties is uncertain. Between the
start of 2009 and 30 June 2015, CIB received approximately US$753 million in repurchase demands in
respect of loans made primarily from 2005 to 2008 and related securities sold where obligations in respect of
contractual representations or warranties were undertaken by CIB. However, repurchase demands
presented to CIB are subject to challenge and rebuttal by CIB.