The governor of the Bank of England has been criticised for allegedly failing to declare a potential conflict of interest in a scandal that saw thousands of Royal Bank of Scotland business customers in ruin.
Bank of England governor Andrew Bailey, the former head of the banking regulator, the Financial Conduct Authority has been facing questions over his role designing the Treasury body that oversaw a troubled divison of the RBS.
The chair of the All Party Parliamentary Group on Fair Business Banking, Kevin Hollinrake, called for Mr Bailey to explain why he had not allegedly not disclosed his role in the establishment of the Treasury’s Asset Protection Agency while working for the Financial Conduct Authority.
A government body, the Asset Protection Agency, was accused of driving the scandal after it pressured the bank to withdraw loans from business customers and obtain their assets.
It is claimed Mr Bailey did not appear to have revealed his role in the establishment of the scheme which was set up to guarantee RBS’s £280 billion assets during the financial crisis.
It was this scheme that was in 2014 accused of pushing the RBS's Global Restructuring Group (GRG) to foreclose on loans.
READ MORE: Watchdog accused of 'whitewash' over RBS small business scandal
The Bank of England said there was no interest to declare.
Two years ago the Financial Conduct Authority (FCA) attempted to draw a line under the five-year scandal that saw officials accused of failing to take action against poor practices at Royal Bank of Scotland's controversial restructuring division.
The GRG was supposed to help small businesses after the financial crisis in 2008, but instead was accused of ruining thousands of livelihoods through allegedly asset-stripping to shore up the bank's balance sheet.
RBS, which received a £45bn bailout during tghe crisis and is now taxpayer-owned, was accused of putting its own interests ahead of its clients when it moved 16,000 small business customers to its Global Restructuring Group (GRG).
More than 90% of those customers suffered some form of mistreatment and many were financially ruined between 2009 and 2013.
RBS set aside 400 million pounds to compensate thousands of small businesses that say they were mistreated by GRG.
A review by Promontory Financial Group, commissioned by the Financial Conduct Authority (FCA), said that the bank failed to ensure customers were treated fairly, but did not find that it had artificially engineered transfers of businesses to the restructuring unit.
The FCA said it was unable to investigate the GRG because its work was outside the regulator's remit. But a final report into the scandal said new rules mean that, in future, similar situations would fall under its regulation.
However, a 78-page report in the summer of 2019 failed to say whether the FCA would have been able to bring a successful case against the GRG managers, even with the new powers.
Mr Bailey was in charge of the FCA when at the time of the report into the GRG, which Mr Hollinrake called a “complete whitewash”.
A Bank of England spokesperson said: “Andrew Bailey had no role in the creation and scoping of the GRG Review which was then undertaken by Promontory.
“These decisions were taken prior to Andrew becoming chief executive of the FCA. He was not a decision maker in respect of any decision by the FCA on whether or not to undertake an enforcement action.”
Mr Bailey did comment on the Promontory review when its findings were release saying at the time: "GRG has been highly damaging for those customers impacted and more widely for the reputation of the banking industry.
"Combined with other issues that have impacted SMEs, it is important for all who work in this sector to regain the public's trust.
"I must acknowledge the distress felt by many of GRG's customers.
"The firm's relations with its customers were often insensitive, dismissive and sometimes too aggressive; these failings made an already stressful situation worse.
"I know that many customers of GRG therefore disagree with our decision to not take enforcement action, but I hope that this report will explain why we reached that decision."
In 2014 Derek Sach, the former head of GRG, told MPs that while it would never be in the long-term interest for RBS to destroy their customers, it would strengthen the balance sheet short-term.
“The Asset Protection Agency came into being in 2010 and they were always pushing us to go for more foreclosure for exactly that reason, which is something I robustly resisted throughout the period,” he said.
“There is quite a bit of correspondence between me and them of threats and counter threats and not being prepared to do that.”
In 2009 then Bank governor Mervyn King said that Mr Bailey had a role in designing that the Asset Protection Scheme.
He said: "I think the banks need to have this protection scheme and I think the taxpayer is entitled to take their share of the returns if they put in money to underwrite the balance sheet. The person who has been working most closely with the Treasury on the design of this is Mr Bailey, so perhaps he can comment."
There is no suggestion Mr Bailey pushed for businesses to be foreclosed on, but questions have been raised over his transparency.
Mr Bailey is alleged to not have revealed his role as he headed the Financial Conduct Authority between 2016 and 2020.
A Freedom of Information request seen by the Mail on Sunday shows that the authority “did not hold records of the FCA board being informed during the period that Andrew Bailey was CEO”.
Mr Hollinrake told the paper: “It is disgraceful. I can hardly believe it. I did not know (Bailey) was involved in the design of the Asset Protection Agency because no one did.
“In public life you are meant to declare your interests because the FCA was leading this investigation into GRG and it was a complete whitewash.
“We need a proper investigation and he needs to answer in public why he did not disclose this.”
The two-year-old report said "the evidence does not suggest that management sought to treat customers unfairly".
One option for the FCA to punish managers at the GRG could have been to declare them no longer "fit and proper" but officials said this label could not apply.
The report also refused to name any of the senior managers involved in the scandal, citing legal reasons.
It was issued after the Treasury Select Committee demanded details of why the FCA could not investigate and censure the GRG. A summary was initially published, but MPs demanded the full report.
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