RBS 2014 Annual Report Download - page 81

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79
RBS – Interim Results 2015
Notes
5. Provisions for liabilities and charges (continued)
Payment Protection Insurance (PPI)
No additional charge for PPI has been recognised in Q2 2015. A charge of £100 million was recognised in
Q1 2015 as a result of a revision to expected customer complaint volumes. The cumulative charge in respect
of PPI is £3.8 billion, of which £3.1 billion (82%) in redress and expenses had been utilised by 30 June 2015.
Of the £3.8 billion cumulative charge, £3.5 billion relates to redress and £0.3 billion to administrative
expenses.
The table below shows the sensitivity of the provision to changes in the principal assumptions (all other
assumptions remaining the same).
Sensitivity
Change in
assumption
Consequential
change in
provision
Assumption Actual to date
Current
assumption % £m
Single premium book past business review take-up rate 53% 55% +/-5 +/-55
Uphold rate (1) 91% 90% +/-5 +/-15
Average redress £1,689 £1,659 +/-5 +/-15
Note:
(1) Uphold rate excludes claims where no PPI policy was held.
Interest payable on successful complaints has been included in the provision as has the estimated cost of
administration. RBS expects the majority of the cash outflows associated with the remaining provision to
have occurred by Q2 2016. There are uncertainties as to the eventual cost of redress which will depend on
actual complaint volumes, take-up and uphold rates and average redress costs. Assumptions relating to
these are inherently uncertain and the ultimate financial impact may be different from the amount provided.
We continue to monitor the position closely and refresh the underlying assumptions.
Interest Rate Hedging Products (IRHP) redress and related costs
Following an industry-wide review conducted in conjunction with the Financial Services Authority (now being
dealt with by the Financial Conduct Authority (FCA)), RBS agreed to provide redress to customers in relation
to certain interest rate hedging products sold to small and medium-sized businesses classified as retail
clients under FSA rules. An additional net charge of £69 million has been recognised in Q2 2015, principally
reflecting a marginal increase in our redress experience compared to expectations and the cost of a small
number of consequential loss claims over and above interest offered as part of basic redress. We have now
agreed outcomes with the independent reviewer on all cases. A cumulative charge of £1.5 billion has been
recognised of which £1.2 billion relates to redress and £0.3 billion relates to administrative expenses. We
continue to monitor the level of provision given the remaining uncertainties over the eventual cost of redress,
including the cost of consequential loss claims.