The focus of this report is to analyze how the activities and ethical behavior of RBS (Royal Bank of Scotland), a leading global financial group, affect different stakeholders within the organization.
The group operates globally with over 140,000 employees in 30 countries and over 2000 sites. Its subsidiaries, including NatWest, Lombard, First Active, Direct Line, and Churchill, are focused on customer satisfaction since the 2008 credit crunch. RBS aims to improve corporate banking, support business growth, and enhance customer service to gain loyalty in competitive markets.
RBS, being a financial institution, must engage in careful and strategic deliberation prior to making decisions or taking any actions within its business. Given their involvement with financial products and services, it is crucial for RBS to prioritize ethical behavior and guarantee the absence of criminal activity. Regulatory bodies exert substantial effort to prevent any unethical conduct that is not condoned by the overseeing authorities responsible for banking practices.
Despite regulatory bodies monitoring banking activities and implementing laws and procedures for banks to follow, unethical behavior remains prevalent within banks, whether it involves individuals, groups, or the entire organization. By examining the history of RBS, one can observe the company’s fluctuations in recent years. Unethical behavior has had a significant impact on various shareholders within RBS. Similar to many other banks, RBS has a record of deceitful practices in selling Payment Protection Insurance (PPI) to customers. As a result, both RBS and other implicated banks have been obligated to compensate affected customers.
Payment Protection Insurance (PPI) is an insurance policy that covers loans and other borrowings. It offers protection if the borrower dies or loses their job, allowing the insurance to pay off the loan. Customers bought this insurance, both knowingly and unknowingly, but were not given clear information about the terms and conditions regarding non-payment of the loan. Sadly, PPI only paid minimum repayments for a limited period of approximately twelve months. Consequently, customers were deceived into paying for PPI that ultimately provided no benefit when they couldn’t repay their loans. The Royal Bank of Scotland (RBS) has already suffered significant losses from compensating affected customers.
Royal Bank of Scotland (RBS) has suffered estimated losses between £580 million and £1.3 billion due to people reclaiming their money on Payment Protection Insurance (PPI) and the accompanying interest charges. To prepare for potential future PPI compensation payments, RBS has set aside £500 million. In order to avoid further compensations, RBS is focusing heavily on preventing product mis-selling. As a result of the PPI mis-selling, stakeholders of RBS have been impacted in various ways, with shareholders experiencing a significant decline in dividends that they would have otherwise received.
RBS must utilize their profits to settle the PPI fines owed to customers, resulting in a reduction in dividends for shareholders. Regrettably, this has a negative impact on RBS, as it disadvantages shareholders through decreased dividend payouts. Moreover, customers have been negatively affected by PPI, facing additional fees on loans and other borrowed amounts from RBS. A few customers even encounter challenges in meeting minimum repayments, thereby making loan repayment more difficult for them.
Mis-selling led to a false belief among individuals that they would be protected in the event of unemployment or loss of income. As a result, confidence in banking products was lost as people expected support during difficult times. When they realized they were not covered and had to repay loans, it caused mental distress, resulting in a lack of trust in RBS banking offerings. Additionally, the Financial Services Authority and other regulatory bodies faced financial consequences as they had to allocate funds to compensate FSA employees who were investigating the PPI scandal.
The FSA is currently investing a significant amount of time to ensure compensation is provided to all PPI claimants, resulting in a time-consuming process. Their investigation and penalties against banks serve as a deterrent for future unethical conduct. Consequently, the FSA has strengthened regulations surrounding the selling of products to customers and banking operations. The FSA is also closely examining customer-bank interactions and scrutinizing all products offered by banks.
Despite most customers being compensated by RBS, I believe that the trust bond with their customers has already been compromised. This affects how customers approach buying insurance products or additional insurance, as they may now hesitate due to viewing RBS’s additional products as potential scams or unnecessary. In order to regain trust with stakeholders, RBS must offer factual information and only sell products that are relevant to individual customers’ needs.
On 3rd August 2010, the FSA imposed a fine of £5.6 million on RBS group for its inadequate systems and control regarding the UK financial sanctions regime. According to the Money Laundry Regulation 2007, it is forbidden for UK banks and businesses to offer financial services to individuals on the HM Treasury Sanctions list. However, RBS failed to implement policies to prevent funding and services to these individuals. Furthermore, RBS neglected to investigate the source of funds entering customers’ accounts.
The source of money received or cashed out of customers’ accounts was not investigated by them. The FSA believes that RBS’s funding may have facilitated transactions involving sanctions targets and terrorist financing. RBS admitted their mistake in not paying attention to these issues and were fined £5.6 million as a result. This outcome affected various stakeholders differently. When an organization’s name is associated with the word “terrorist,” people tend to distance themselves from the situation. This is why stakeholders wanted no involvement with RBS after they were fined for their failure in implementing screening procedures.
The main stakeholders that will have an impact on RBS are the customers. They will refrain from opening accounts with RBS, NatWest, Ulster Bank, and Coutts and Co. This is due to their belief that the money they deposit in these banks is being used to finance criminal and terrorist activities. Consequently, customers are abandoning RBS and NatWest as their banking choices and transferring their funds to other financial institutions. The number of new account holders at RBS has declined significantly due to the perception that it is involved in financing terrorism. As a result, RBS’s reputation is likely to suffer as people perceive them to be associated with unlawful activities.
RBS must regain trust from people and implement measures to prevent a repetition of the issue. The lack of confidence led to a decline in the purchase of RBS market shares on the stock exchange, prompting shareholders to sell their shares hastily. Consequently, shareholders experienced losses due to declining share prices, while RBS’s reputation suffered, resulting in a devaluation in the stock exchange. Additionally, RBS’s profits dwindled as they had to compensate for the fines incurred. Consequently, shareholders will receive lower dividend payouts.
Although RBS has not always been ethical, they have made efforts to improve and establish strong relationships with their stakeholders. This is evident in their commitment to the community and their investment of profits towards it. RBS’s emphasis on Corporate Social Responsibility portrays them as an ethical institution that cares about society. This is demonstrated through their participation in various activities and support for projects aimed at benefitting future generations and creating a more sustainable planet.
RBS has been collaborating with The Princes Trust for over 11 years, providing financial support for the enterprise programme. This initiative aids individuals aged 16 to 30 in overcoming personal obstacles and attaining their aspirations. RBS actively assists young people in nurturing their ideas and cultivating entrepreneurial skills. This commitment demonstrates RBS’s dedication to the welfare of the younger generation, utilizing its profits to contribute to projects that foster a bright future for youth.
The text highlights the desire of RBS to showcase their contribution in building businesses and supporting young people, thereby benefiting society. By continuing to support the society, they can regain customer trust and enhance their reputation. It is mentioned that in 2011, RBS utilized 61% of their gas from natural sources. Furthermore, they are currently providing substantial financial aid to organizations involved in renewable energy initiatives. Additionally, RBS has invested £50 million to assist small businesses in launching their renewable energy projects.
In 2011, RBS lent £366 million to support renewable projects. Additionally, RBS has implemented various environmentally-friendly practices. They have demonstrated their commitment to ethical operations by adopting simple daily habits such as minimizing paper usage through electronic systems. As part of this effort, RBS now provides electronic statements instead of paper statements to customers.
RBS has demonstrated their commitment to the environment and ethical practices, gaining support from campaigns like Greenpeace. Their investments in Greenpeace projects have played a crucial role in preventing global warming, evident by their inclusion in success stories. RBS’s ethical conduct and decision-making have greatly influenced the government, leading to a bailout after bankruptcy in October 2008.
The government stepped in to avoid the failure of RBS, which would have had serious repercussions on the national economy. RBS, being a significant player in the UK, would have experienced significant losses without assistance. In return for the bailout, the government acquired control over the bank’s operations and could oversee management bonuses. Additionally, the government eliminated bonuses and dividends, and since there was little interest from other investors, RBS was obligated to sell its shares to the government.
The acquisition of 605 shares by the government has made them the owners of RBS, granting a deeper understanding of the bank’s operations and the ability to dictate its functioning. The bank’s investment in other banks appears primarily aimed at boosting future profits from RBS. This purchase also enhances control over the bank’s finances, ensuring higher dividends for shareholders, notably the government, in forthcoming years.
Allowing RBS to go bankrupt would have major consequences for the country. It would result in the loss of a respected bank, leading to job cuts for its employees. As a result, these unemployed individuals would rely on government assistance through state benefits. From my perspective, instead of just providing aid, the government chose to invest money in saving the bank in order to secure a return on their investment.
Following a financial crisis, RBS was rescued by the government and has since made significant improvements to its operations. The government is closely monitoring their activities to ensure both profitability and repayment of taxpayers’ funds. RBS has successfully reimbursed £163bn in emergency loans from US and British taxpayers, which included high interest charges. It is hoped that even after clearing their debt, RBS will continue to uphold ethical behavior in order to avoid further compensation for those affected by their unethical actions.
