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UK Treasury to end oversight of £425m scheme to help banks after RBS bailout

Kalyeena Makortoff Banking correspondent
Thu, 28 December 2023 

Photograph: Bloomberg/Getty Images

Lenders that received payouts from a £425m pot of public cash set aside after Royal Bank of Scotland was bailed out in 2008 will not be held accountable over delayed projects, after the Treasury refused to extend supervision arrangements beyond the new year.

Under so-called state aid rules, which applied when the UK was still a member of the European Union, RBS money was given to smaller challenger banks to spend developing their services for business customers, in an effort to promote competition and offset the market-skewing effects of RBS’s £45bn government bailout in 2008.

But the Banking Competition Remedies (BCR) body, which distributed funds and monitors how they are spent, is set to be wound down in February. Data published by the BCR reveals that, of the 24 recipients of the funds, 15 have “deliverables outstanding”, meaning they have yet to deliver the projects they were paid for.

In a public warning issued months before its planned liquidation, the BCR said: “No alternative reporting mechanism has been put in place for those awardees with outstanding deliverables and, therefore, they will be responsible for holding themselves to account and updating on their public commitments.”

It will leave no one to oversee the way lenders including Metro Bank, Virgin Money, the Cooperative Bank and specialist lenders like Atom Bank deliver their delayed projects, and spend any remaining funds.

Metro Bank, which was controversially awarded the largest prize of £120m in 2019 despite a major accounting scandal months earlier, has so far opened only four of the seven branches it promised by the end of 2023. The lender, which ended up handing back £50m of its funds a year later, was also 4,000-shy of the 206,000 business current account customers it hoped to gain by year-end. A Metro Bank spokesperson said the bank had made “good progress” and was confident in reaching store opening and account volume goals by 2025.

Meanwhile, the Co-operative Bank had only managed to cut its 15-day account opening process to seven days, leaving a “notable gap” in meeting its five-day target. It has also only managed to secure 1.8% of the UK SME market, versus targets for 2.1%.

Virgin Money is also tracking behind its near-term customer targets, the BCR said, without giving exact figures. The bank said it had achieved six of eight commitments and expected to achieve remaining targets by the agreed 2025 target date.

While the BCR asked ministers to extended its term until at least the end of 2024, that request was ultimately denied by the Treasury earlier this year, without any alternative monitoring system being put in place.

No public explanation has been given for refusing the request from BCR, which has had its operating costs – £15m to date – covered by RBS, now known as NatWest Group.

There are also no penalties for missing targets, and the BCR, with its dwindling powers, has only been able to recommended that lenders publish updates on their websites.

While the 15 lenders reached a number of their respective targets, many remain unfulfilled. They have blamed a range of factors, including the impact that the UK’s economic slowdown had on borrowing by businesses, as well as the tighter labour market, which made it harder to find competent staff for their new or expanded services.

The Treasury said: “The successful implementation of the Alternative Remedies Package (ARP) resolved a key legacy issue for NatWest, facilitating further sales of the government’s shareholding whilst benefitting the SME banking market.

“Banking Competition Remedies has played an important role in monitoring the ARP to date and have already set out a recommendation that firms continue to provide updates on any outstanding commitments going forwards.”