Zurich Dunbar Remediation Support Group is set up to assist Members in obtaining recompense for damage to their businesses by Zurich Dunbar.
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Remediation Support Group for Victims of Zurich & Dunbar
Statement on Dunbar Bank
September 14, 2015
Following the BBC Inside Out programme, aired on 14 September 2015, Zurich has made the following statement:
“Dunbar acted as a secured lender for commercial property developers and investors who took out loans typically in the range of £2million to £5million.
“Following a fall in the realisable value of properties, caused in part by the financial crisis, some borrowers were unable to meet their debts when they became due for repayment.
“Like any commercial lender, Dunbar sought to lawfully recover outstanding debts and acted appropriately and fairly throughout. Dunbar recognises that recovering debts can be a difficult and distressing situation for all those involved.
“Where a loan is in default, Dunbar has attempted to work with borrowers to negotiate fair and reasonable settlements, which includes renewing and extending loans, and has reached numerous amicable settlements. Pursuing debts through the courts is always a last resort. Where it has been necessary, each bankruptcy has been determined by the court following a fair and independent hearing.
“When carrying out valuations of properties used to secure loans, Dunbar employs independent third party valuers, who are required to comply with mandatory rules governing asset valuations. Likewise, the sale of any properties used to secure loans would be conducted by experienced and independent insolvency practitioners who are bound by their professional body to secure the maximum value for all parties. Dunbar expects all appointed insolvency professionals to maintain the highest standards of integrity and professional conduct in carrying out their roles.
“Dunbar has acted lawfully and appropriately at all times in agreeing loans, and seeking the recovery of unpaid debts.”
In Parliament / Regulator
Conclusions and Recommendations
82. The length of time taken by the FCA to investigate events at RBS’s Global Restructuring Group has left those who saw their livelihoods destroyed understandably incensed. The Committee shares their concerns.
83. The FCA is not taking enforcement action against the perpetrators of the misconduct at GRG, but this must not be interpreted as a “not guilty” verdict. SME customers were treated appallingly, and because of shortcomings in regulation, this mistreatment is likely to go unpunished. The Committee views this inaction as a damning indictment of the regulatory regime and a sad reflection of its inadequacies. GRG exemplifies a regulatory framework that is failing the UK’s small businesses.
84. The FCA itself concedes that the failures at GRG might ordinarily have triggered disciplinary action had they occurred in a regulated business. That we have a regime in place that allows this sort of behaviour to take place with impunity is simply unacceptable. The victims of misconduct—who have seen those that destroyed their businesses go unpunished—rightly expect change.
85. Experience has shown that the justification for leaving commercial lending outside the regulatory perimeter is feeble, and it is unclear whether this issue was subject to sufficient public debate when the regulatory perimeter was first established. Many small business owners are no more financially sophisticated than everyday consumers, yet they will often be required to engage with relatively complex financial products. They may also lack the resources to purchase the appropriate advice or expertise externally. To deprive them of regulatory protection because of an assumed universal sophistication is wrong, and this unfairness is compounded by the fact that most SMEs are unaware of the regulatory position. In addition, the interconnection between personal finances and business finances can mean that the potential for personal catastrophe due to SME banking misconduct is significant. The Treasury and the FCA should introduce a regulatory regime that protects SMEs. The scope of the regime must be based on an appreciation of the varying levels of financial sophistication within the SME community. This will require analysis of the financial sophistication of the UK’s SMEs that goes beyond blunt metrics covering headcount and turnover.
86. The Committee recognises that bringing commercial lending within the regulatory perimeter will not be a ‘silver bullet’. But doing so would afford the FCA a significant amount of discretion as to how to design and implement a regulatory regime. This regime would need to be proportionate—taking account of the potential impact on the supply of credit to SMEs—and targeted at those SMEs that show the greatest need for additional protection.
87. The FCA’s plans to drive up conduct standards in the SME lending market by using industry codes of conduct will not provide SMEs with the protection they need. The idea is untested and, as Andrew Bailey acknowledges, industry codes do not have a track record of success. Firms cannot be compelled to sign up to voluntary codes of conduct, and the FCA’s initiative may lead to these codes being watered down if they are drafted in the knowledge that they may be enforced against in future.
88. Mr Bailey told the Committee that if the initiative does not work, the regulatory perimeter will need to be reconsidered. The Committee considers it unwise to take a ‘wait and see’ approach; the authorities should get on the front foot by taking action that they know will provide adequate protection to SMEs. It is clear that extending the regulatory perimeter is now necessary. Waiting for another high-profile misconduct scandal before pursuing it would be irresponsible. This episode has raised wider questions about the perimeter of regulation, which the Committee continues to consider.
The Treasury Committee and the perimeter
13. Concerns about the perimeter and its complexity have featured in the work of previous Treasury Committees. The Treasury Committee in the 2010–15 Parliament concluded in its Report Conduct and competition in SME lending that so-called Tailored Business Loans (TBL) sold by Clydesdale bank had specifically been designed with the perimeter in mind:
From the point of view of the customer, the services provided by the hedging element of a loan with an embedded interest rate hedging facility—such as a Tailored Business Loan—and a stand-alone IRHP [Interest rate hedging product] are extremely similar, if not identical. But stand-alone IRHPs are regulated, while loans with embedded interest rate hedging facilities are not. It is a logically inconsistent result of the perimeter of regulation that products whose effects may be identical fall on both sides of the perimeter.
Clydesdale understood that TBLs were unregulated. It created TBLs to avoid requirements imposed by the regulator on the sale of a regulated product, IRHPs. It claims that this was to simplify the associated documentation and to make the product easier for customers to understand. The use of TBLs has left regulators powerless to enforce compensation for customers to whom products were mis-sold, as they have done with IRHPs. Clydesdale created a product that retained the risks and complexities of the regulated product but had none of the safeguards. 11
14. Issues around the perimeter have also been present in the work of the current Treasury Committee. The following list provides examples of topics the Committee has considered or queried that have elements of perimeter complexity to them:
- RBS’ Global Restructuring Group (GRG), and the wider issue of SME lending.
- ‘Mortgage prisoners’ (those who face barriers to switching their mortgage).
- The failure of London Capital and Finance, and wider questions around the regulation of so-called ‘mini-bonds’.
- The regulation of Cryptoassets.
- The regulation of Funeral plans.
15. Many of these issues have seen significant harm done to consumers and small businesses. For example, in the course of its work, this Committee has heard first hand the considerable distress to SME owners brought about by RBS GRG. In part, it led this Committee to initiate its wider inquiry and Report into SME Finance. Subsequently, there has been widespread disappointment at the FCA’s inability to take action following its publication of its Report on the Financial Conduct Authority’s further investigative steps in relation to RBS GRG, due to the constraints of the Perimeter.12 Mr Bailey, when asked whether he would recognise that “there will be individuals out there who feel they have not had justice?”, replied “Yes, but I cannot operate outside the law. I am sorry”.13
16. The perimeter of regulation, as has been seen in the Committee’s work, appears to be confusing for consumers of financial services, whether they be individuals or small businesses. In fact, that lack of understanding may well be preyed upon. Some firms may also deliberately game the perimeter to undertake regulatory arbitrage.
17. Care needs to especially be taken where regulated financial institutions are undertaking an activity that is itself unregulated. Often the realisation that an activity is unregulated comes only after problems emerge, and the regulator’s lack of power becomes apparent to those affected.
18. The Committee recommends that where regulated financial institutions undertake unregulated activity, the regulatory system should ensure that clear and explicit warnings are provided at that point, with the potential consequences of the lack of regulatory cover clearly explained, with sanctions for firms that fail to do so. HMG / HMT response to the report is outstanding.
HMT response to Regulatory Perimeter report on 10 October 2019 Interim Chair Catherine McKinnell said “It was disappointing <..> that the Government does not see the case for providing a formal power for the FCA to request changes to the perimeter.”
In the FCA’s response, which the Committee received on the 14 October and has published today, Andrew Bailey, Chief Executive of the FCA, said: “We share the Committee’s view that there could be a more structured and transparent approach for identifying and engaging with HMT on perimeter changes. This could allow for a regular opportunity to consider what activities are covered by regulation, and hence transparency surrounding changes to the FCA regulatory perimeter.”
Commenting on the FCA’s correspondence, Ms McKinnell said:
“The Treasury Committee has recommended that the FCA is given the formal power to suggest changes to the Government over what it regulates, which could help the FCA to protect consumers.”
“Disappointedly, yet perhaps unsurprisingly, the Government rejected our recommendation, opting instead to keep the opaque system as it is.”
“The independent FCA, on the other hand, shares our view, rather than the Government’s that a more formal or structured approach would provide greater transparency to the process”
“The Committee awaits the work promised by both the FCA and the Government, and we will continue to raise these issues in our evidence sessions.”
31 October 2017 Brian Little email exchanges with SS – then Parliamentary aide to John Mann MP
SS – Great re John’s Perimeter Question / comment at TSC this morning, following our discussion and sight of the attached letter from my MP Jim Shannon
Hi Brian, “Yes—the main committee sent it to us as part of their briefing back on Friday. Hope that you felt the questioning covered good ground.”
Q50 John Mann: ………………. One final question/request is that you referred earlier to things being outside the regulatory perimeter. I have heard that before from you and your predecessors, and indeed on a totally separate issue with the Advertising Standards Authority, which is in similar dialogue over your powers in terms of currency exchange.
Andrew Bailey: That is not a perimeter issue.
Q51 John Mann: It is indeed. It is an entirely different aspect. In terms of my question, would you be prepared to provide to this Committee—and it might take some time, but we are not in a rush—the precise areas of powers that you do not have that it would be useful for this Committee to consider whether you should have, both in relation to the GRG issue and what you describe as being outside the regulatory perimeter, but perhaps for other issues as well? That is something that we have never had. It is a big piece of work but, for a new Committee coming into a five year Parliament — possibly, legally, that is our presumption and our mandate is for five years—it would be significantly useful to the work of this Committee. I am not asking you which ones you desperately think you should have, and we might come back to you on that of course, but which ones you do not have so that, when you are saying, “We cannot do it,” be it in correspondence or be it in exchange, we are clear, so we can think through what our responsibilities and powers are to change that.
Andrew Bailey: The answer to that is yes. I agree with you it is a good idea. It is a good idea also because, as I said earlier, it has changed in interpretation as a result of the senior managers regime, which we are still introducing by the way, because we have a very big roll-out of that to the non-bank world next year, so I agree with you. We know the case we are talking about. The issue with the Advertising Standards Authority is we do not think we have the power to enforce their decision. It is not really a perimeter issue.
John Mann: I am sure in a future meeting we will come to that. The Chair would rule me out if I went on to that now, although it is a very important issue. I would need several questions, so I will defer that.
In the newspapers / Useful Links for RBS RSG Bank Victims
Royal Bank of Scotland became the last of the UK’s major banks to announce its provisions against PPI claims, and followed that of recently appointed Antonio Horta-Osario as CEO of Lloyds Banking Group last week <5 May> “which became the first of the UK’s big banks to withdraw its support for the BBA appeal as it said it had agreed a £3.2bn provision to meet PPI claims.”
21 June 2019 Rachel Wolcott, Regulatory Intelligence, Reuters: FCA’s 15-month interest-rate swap redress review to hinder claims, say industry officials.