REG - Royal Bk Scot.Grp. - Final Results <Origin Href="QuoteRef">RBS.L</Origin> - Part 6
24/02/2017 07:07
- Part 6: For the preceding part double click ID:nRSX7681Xe
Loss on remeasurement of retirement benefit schemes (1,049) (73) (2) (52) (93)
Tax 288 306 3 12 310
(761) 233 1 (40) 217
Items that do qualify for reclassification
Available-for-sale financial assets (94) 44 68 (67) 139
Cash flow hedges 765 (700) (750) (66) (398)
Currency translation 1,263 (1,181) (13) 205 (4)
Tax (106) 108 191 63 2
1,828 (1,729) (504) 135 (261)
Other comprehensive income/(loss) after tax 1,067 (1,496) (503) 95 (44)
Total comprehensive loss for the period (4,181) (2,681) (4,810) (232) (2,643)
Total comprehensive income/(loss) is attributable to:
Non-controlling interests 121 370 (36) 32 13
Preference shareholders 260 297 68 79 74
Paid-in equity holders 244 88 93 56 47
Dividend access share 1,193 - - - -
Ordinary shareholders (5,999) (3,436) (4,935) (399) (2,777)
(4,181) (2,681) (4,810) (232) (2,643)
Statutory results
Condensed consolidated balance sheet as at 31 December 2016
31 December 30 September 31 December
2016 2016 2015
£m £m £m
Assets
Cash and balances at central banks 74,250 69,254 79,404
Net loans and advances to banks 17,278 19,741 18,361
Reverse repurchase agreements and stock borrowing 12,860 12,251 12,285
Loans and advances to banks 30,138 31,992 30,646
Net loans and advances to customers 323,023 326,736 306,334
Reverse repurchase agreements and stock borrowing 28,927 33,704 27,558
Loans and advances to customers 351,950 360,440 333,892
Debt securities 72,522 79,784 82,097
Equity shares 703 728 1,361
Settlement balances 5,526 10,298 4,116
Derivatives 246,981 283,049 262,514
Intangible assets 6,480 6,506 6,537
Property, plant and equipment 4,590 4,490 4,482
Deferred tax 1,803 1,684 2,631
Prepayments, accrued income and other assets 3,700 4,140 4,242
Assets of disposal groups 13 13 3,486
Total assets 798,656 852,378 815,408
Liabilities
Bank deposits 33,317 32,172 28,030
Repurchase agreements and stock lending 5,239 6,557 10,266
Deposits by banks 38,556 38,729 38,296
Customer deposits 353,872 358,844 343,186
Repurchase agreements and stock lending 27,096 29,851 27,112
Customer accounts 380,968 388,695 370,298
Debt securities in issue 27,245 28,357 31,150
Settlement balances 3,645 10,719 3,390
Short positions 22,077 19,882 20,809
Derivatives 236,475 275,364 254,705
Provisions for liabilities and charges 12,836 9,021 7,366
Accruals and other liabilities 6,991 6,933 7,749
Retirement benefit liabilities 363 526 3,789
Deferred tax 662 647 882
Subordinated liabilities 19,419 19,162 19,847
Liabilities of disposal groups 15 15 2,980
Total liabilities 749,252 798,050 761,261
Equity
Non-controlling interests 795 853 716
Owners' equity*
Called up share capital 11,823 11,792 11,625
Reserves 36,786 41,683 41,806
Total equity 49,404 54,328 54,147
Total liabilities and equity 798,656 852,378 815,408
*Owners' equity attributable to:
Ordinary shareholders 41,462 46,328 47,480
Other equity owners 7,147 7,147 5,951
48,609 53,475 53,431
The parent company distributable reserves at 31 December 2016 were £8.0 billion (30 September 2016 - £7.2 billion; 31
December 2015 - £16.3 billion).
Statutory results
Condensed consolidated statement of changes in equity for the period ended 31 December 2016
Year ended Quarter ended
31 December 31 December 31 December 30 September 31 December
2016 2015 2016 2016 2015
£m £m £m £m £m
Called-up share capital
At beginning of period 11,625 6,877 11,792 11,756 6,984
Ordinary shares issued 198 159 31 36 51
Conversion of B shares (1) - 4,590 - - 4,590
Preference shares redeemed (2) - (1) - - -
At end of period 11,823 11,625 11,823 11,792 11,625
Paid-in equity
At beginning of period 2,646 784 4,582 2,536 2,646
Redeemed/reclassified (3) (110) (150) - - -
Additional Tier 1 capital notes issued (4) 2,046 2,012 - 2,046 -
At end of period 4,582 2,646 4,582 4,582 2,646
Share premium account
At beginning of period 25,425 25,052 25,663 25,628 25,315
Ordinary shares issued 268 373 30 35 110
At end of period 25,693 25,425 25,693 25,663 25,425
Merger reserve
At beginning of period 10,881 13,222 10,881 10,881 13,222
Transfer to retained earnings - (2,341) - - (2,341)
At end of period 10,881 10,881 10,881 10,881 10,881
Available-for-sale reserve
At beginning of period 307 299 188 232 210
Unrealised gains 282 31 69 24 139
Realised (gains)/losses (376) 27 (1) (91) 2
Tax 25 (16) (18) 23 (44)
Recycled to profit or loss on ceding control of Citizens (5) - 9 - - -
Transfer to retained earnings - (43) - - -
At end of period 238 307 238 188 307
Cash flow hedging reserve
At beginning of period 458 1,029 1,565 1,603 810
Amount recognised in equity 1,867 712 (471) 199 (65)
Amount transferred from equity to earnings (1,102) (1,354) (279) (265) (333)
Tax (193) 98 215 28 46
Recycled to profit or loss on ceding control of Citizens (6) - (36) - - -
Transfer to retained earnings - 9 - - -
At end of period 1,030 458 1,030 1,565 458
Foreign exchange reserve
At beginning of period 1,674 3,483 2,898 2,706 1,679
Retranslation of net assets 1,470 (22) (40) 278 17
Foreign currency (losses)/gains on hedges of net assets (278) (176) 35 (36) (26)
Tax 62 (11) (6) 12 -
Transfer to retained earnings - (642) - - -
Recycled to profit or loss on disposal of businesses (7) (40) 4 1 (62) 4
Recycled to profit or loss on ceding control of Citizens (7) - (962) - - -
At end of period 2,888 1,674 2,888 2,898 1,674
Capital redemption reserve
At beginning of period 4,542 9,131 4,542 4,542 9,132
Conversion of B shares (1) - (4,590) - - (4,590)
Preference shares redeemed (2) - 1 - - -
At end of period 4,542 4,542 4,542 4,542 4,542
Refer to page 53 for footnotes.
Statutory results
Condensed consolidated statement of changes in equity for the period ended 31 December 2016
Year ended Quarter ended
31 December 31 December 31 December 30 September 31 December
2016 2015 2016 2016 2015
£m £m £m £m £m
Retained earnings
At beginning of period (4,020) (4,001) (8,500) (6,841) (3,851)
(Loss)/profit attributable to ordinary shareholders
and other equity owners
- continuing operations (5,258) (2,801) (4,280) (334) (2,709)
- discontinued operations - 1,207 - - 90
Equity preference dividends paid (260) (297) (68) (79) (74)
Paid-in equity dividends paid, net of tax (244) (88) (93) (56) (47)
Dividend access share dividend (1,193) - - - -
Transfer from available-for-sale reserve - 43 - - -
Transfer from cash flow hedging reserve - (9) - - -
Transfer from foreign exchange reserve - 642 - - -
Transfer from merger reserve - 2,341 - - 2,341
Costs of placing Citizens equity - (29) - - -
Redemption of equity preference shares (2) (1,160) (1,214) - (1,160) -
Loss on remeasurement of retirement benefit schemes
- gross (1,049) (67) (2) (52) (87)
- tax 288 306 3 12 310
Shares issued under employee share schemes (10) (58) - (3) (1)
Share-based payments
- gross (9) 36 4 13 12
- tax - (4) - - (4)
Redemption/reclassification of paid-in equity (21) (27) - - -
At end of period (12,936) (4,020) (12,936) (8,500) (4,020)
Own shares held
At beginning of period (107) (113) (136) (136) (108)
Disposal of own shares - 6 - - 1
Shares issued under employee share schemes 41 - 7 - -
Own shares acquired (66) - (3) - -
At end of period (132) (107) (132) (136) (107)
Owners' equity at end of period 48,609 53,431 48,609 53,475 53,431
Refer to the following page for footnotes.
Statutory results
Condensed consolidated statement of changes in equity for the period ended 31 December 2016
Year ended Quarter ended
31 December 31 December 31 December 30 September 31 December
2016 2015 2016 2016 2015
£m £m £m £m £m
Non-controlling interests
At beginning of period 716 2,946 853 820 703
Currency translation adjustments and other movements 111 3 (9) 25 1
Profit/(loss) attributable to non-controlling interests
- continuing operations 10 75 (27) 7 20
- discontinued operations - 334 - - -
Dividends paid - (31) - - -
Movements in available-for-sale securities
- unrealised gains/(losses) - 22 - - (2)
- realised gains - (6) - - -
- tax - (5) - - -
Movements in cash flow hedging reserve
- amount recognised in equity - 32 - - -
- tax - (4) - - -
Actuarial losses recognised in retirement benefit schemes
- gross - (6) - - (6)
Equity raised (8) - 2,537 - - -
Equity withdrawn and disposals (42) (24) (22) 1 -
Loss of control of Citizens - (5,157) - - -
At end of period 795 716 795 853 716
Total equity at end of period 49,404 54,147 49,404 54,328 54,147
Total equity is attributable to:
Non-controlling interests 795 716 795 853 716
Preference shareholders 2,565 3,305 2,565 2,565 3,305
Paid-in equity holders 4,582 2,646 4,582 4,582 2,646
Ordinary shareholders 41,462 47,480 41,462 46,328 47,480
49,404 54,147 49,404 54,328 54,147
Notes:
(1) In October 2015, all B shares were converted into ordinary shares of £1 each.
(2) In September 2016, non-cumulative US dollar preference shares were redeemed at their original issue price of US$1.5 billon (2015 - $1.9 billion). The nominal value of £0.3 million (2015 - £1 million) was transferred from share capital to capital redemption reserve and ordinary owners' equity was reduced by £0.4 billion (2015 - £0.2 billion) in respect of the movement in exchange rates since issue.
(3) Paid-in equity reclassified to liabilities as a result of the call of RBS Capital Trust C in May 2016 (redeemed in July 2016) and the call of RBS capital Trust IV in January 2015 (redeemed in March 2015).
(4) AT1 capital notes totalling £2.0 billion issued in August 2016.
(5) Year ended 31 December 2015 net of tax - £6 million charge.
(6) Year ended 31 December 2015 net of tax - £16 million credit.
(7) No tax impact.
(8) Includes £2,491 million relating to the secondary offering of Citizens in March 2015.
Statutory results
Condensed consolidated cash flow statement for the period ended 31 December 2016
Year ended
31 December 31 December
2016 2015
£m £m
Operating activities
Operating loss before tax on continuing operations (4,082) (2,703)
Operating profit before tax on discontinued operations - 1,766
Adjustments for non-cash items (7,810) (6,661)
Net cash outflow from trading activities (11,892) (7,598)
Changes in operating assets and liabilities 8,413 8,589
Net cash flows from operating activities before tax (3,479) 991
Income taxes paid (171) (73)
Net cash flows from operating activities (3,650) 918
Net cash flows from investing activities (4,359) (4,866)
Net cash flows from financing activities (5,107) (940)
Effects of exchange rate changes on cash and cash equivalents 8,094 576
Net decrease in cash and cash equivalents (5,022) (4,312)
Cash and cash equivalents at beginning of year 103,592 107,904
Cash and cash equivalents at end of year 98,570 103,592
Notes
1. Basis of preparation
The condensed consolidated financial statements should be read in conjunction with RBS's 2016 Annual Report and Accounts
which was prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International
Accounting Standards Board (IASB) and interpretations issued by the IFRS Interpretations Committee of the IASB as adopted
by the European Union (EU) (together IFRS).
Accounting policies
RBS's principal accounting policies are set out on pages 297 to 306 of the 2016 Annual Report and Accounts. Amendments to
IFRSs effective for 2016 have not had a material effect on RBS's 2016 results.
IFRS 9, Financial Instruments, becomes effective from 1 January 2018. Pages 308 to 313 of the Annual Report and Accounts
sets out the expected qualitative affects on RBS.
Critical accounting policies and key sources of estimation uncertainty
The judgements and assumptions that are considered to be the most important to the portrayal of RBS's financial condition
are those relating to pensions, goodwill, provisions for liabilities, deferred tax, loan impairment provisions and fair
value of financial instruments. These critical accounting policies and judgements are described on pages 306 to 308 of
RBS's 2016 Annual Report and Accounts.
Going concern
Having reviewed RBS's forecasts, projections and other relevant evidence, the directors have a reasonable expectation that
RBS will continue in operational existence for the foreseeable future. Accordingly, the results for the period ended 31
December 2016 have been prepared on a going concern basis.
2. Pensions
As at 31 December 2016, the Main scheme had an unrecognised surplus under IAS 19 valuation principles. The surplus is
unrecognised because the trustee's power to enhance member benefits could consume that surplus meaning that RBS does not
control its ability to realise an asset. The existence of the asset, albeit unrecognised, limits RBS's exposure to changes
in actuarial assumptions and investment performance. See Note 4 on the 2016 Annual Report and Accounts for further
details.
Notes
3. Provisions for liabilities and charges
Payment Other Residential Litigation
protection customer mortgage and other Property
insurance redress (1) backed securities regulatory and other Total
£m £m £m £m £m £m
At 1 January 2016 996 821 3,772 519 1,258 7,366
Transfer from accruals and other liabilities - - - - 19 19
Transfer - 21 - 50 (71) -
Currency translation and other movements - - 118 18 28 164
Charge to income statement - 11 - 34 79 124
Releases to income statement - (8) - (1) (19) (28)
Provisions utilised (85) (104) (16) (8) (69) (282)
At 31 March 2016 911 741 3,874 612 1,225 7,363
Transfer from accruals and other liabilities - 35 - 5 14 54
Transfer 50 (50) 105 (105) - -
Currency translation and other movements - 8 329 30 20 387
Charge to income statement 400 117 - 779 233 1,529
Releases to income statement - (5) - (12) (95) (112)
Provisions utilised (114) (80) (72) (69) (146) (481)
At 30 June 2016 1,247 766 4,236 1,240 1,251 8,740
Transfer from accruals and other liabilities - - 17 - - 17
Currency translation and other movements - - 92 7 19 118
Charge to income statement - 16 271 198 191 676
Releases to income statement - (12) (22) (26) (8) (68)
Provisions utilised (102) (79) (78) (27) (176) (462)
At 30 September 2016 1,145 691 4,516 1,392 1,277 9,021
Transfer from accruals and other liabilities - 2 - 12 3 17
Transfer - 2 - (19) 17 -
Currency translation and other movements - 1 147 6 23 177
Charge to income statement 201 484 3,120 612 1,017 5,434
Releases to income statement - (4) (69) (34) (232) (339)
Provisions utilised (93) (71) (962) (51) (297) (1,474)
At 31 December 2016 1,253 1,105 6,752 1,918 1,808 12,836
Note:
(1) Closing provision predominantly relates to investment advice, packaged accounts (including costs) and tracker mortgages.
There are uncertainties as to the eventual cost of redress in relation to certain of the provisions contained in the table
above. Assumptions relating to these are inherently uncertain and the ultimate financial impact may be different from the
amount provided. RBS will continue to monitor the position closely and refresh the underlying assumptions.
Notes
4. Litigation, investigations and reviews
RBS and certain members of the Group are party to legal proceedings and the subject of investigation and other regulatory
and governmental action ("Matters") in the United Kingdom (UK), the United States (US), the European Union (EU) and other
jurisdictions. Note 31 on the RBS 2016 Annual Report and Accounts, issued on 24 February 2017 and available at
rbs.com/results ("Note 31"), discusses the Matters in which RBS is currently involved and developments to those matters.
Other than the Matters discussed in Note 31, no member of the Group is or has been involved in governmental, legal, or
regulatory proceedings (including those which are pending or threatened) that are expected to be material, individually or
in aggregate. Recent developments in the Matters identified in Note 31 which have occurred since the Q3 2016 results were
issued on 28 October 2016, include, but are not limited to, those set out below.
UK 2008 rights issue shareholder litigation
As previously disclosed, claims have been issued against RBSG in the High Court of Justice of England and Wales alleging
that untrue and misleading statements and/or improper omissions, in breach of the Financial Services and Markets Act 2000,
were made in connection with the rights issue announced by RBS on 22 April 2008.
In December 2016 RBS concluded full and final settlements with four of the five shareholder groups representing 78% of the
claims by value. The maximum settlement figure of £800 million is covered by existing RBS provisions and that total figure
assumes that agreement is reached with all groups, is split proportionally between each, and is subject to validation of
claims.
Should the remaining group's claim not be settled, RBS will continue to defend it. Damages have not yet been quantified.
The court timetable provides that a trial of the preliminary issue of whether the rights issue prospectus contained untrue
and misleading statements and/or improper omissions will commence in May 2017. In the event that the court makes such a
finding, further trial(s) will be required to consider whether any such statements and/or omissions caused loss and, if so,
the quantum of that loss.
RMBS-related litigation and investigations in the US
As previously disclosed, RBS companies are defendants in a purported RMBS class action entitled New Jersey Carpenters
Health Fund v. Novastar Mortgage Inc. et al., which remains pending in the United States District Court for the Southern
District of New York. RBS has reached an agreement in principle to settle this matter, subject to documentation and court
approval. The amount of the settlement is covered by an existing provision.
In Q4 2016, a further £3.1 billion ($4.2 billion) provision was taken in respect of various RMBS-related litigation and
investigations. As at 31 December 2016, the total aggregate of provisions in relation to certain of the RMBS litigation
(set out under "Litigation" in Note 31) and RMBS and other securitised products investigations (set out under
"Investigations and reviews" in Note 31) is £6.8 billion ($8.3 billion). The duration and outcome of these investigations
and litigation matters remain uncertain, including in respect of whether settlements for all or any of such matters may be
reached. Further substantial provisions and costs may be recognised and, depending on the final outcome, other adverse
consequences may occur.
Notes
4. Litigation, investigations and reviews (continued)
Trading of asset-backed securities
As previously disclosed, RBS Securities Inc. (RBSSI) has been responding to an ongoing criminal investigation by the United
States Attorney for the District of Connecticut relating to alleged misrepresentations in the trading of various forms of
asset-backed securities, including RMBS, commercial mortgage-backed securities, CDOs, and CLOs. In March and September
2015, two former RBSSI traders entered guilty pleas in the United States District Court for the District of Connecticut,
each to one count of conspiracy to commit securities fraud while employed at RBSSI. RBSSI is in advanced discussions to
resolve the matter.
FX antitrust litigation
As previously disclosed, in September 2015 certain members of the Group, as well as a number of other financial
institutions, were named as defendants in two purported class actions filed in Ontario and Quebec on behalf of persons in
Canada who entered into foreign exchange transactions or who invested in funds that entered into foreign exchange
transactions. The plaintiffs allege that the defendants violated the Canadian Competition Act by conspiring to manipulate
the prices of currency trades. In January 2017, RBS reached an agreement in principle to settle these matters for
approximately CAD 13 million, subject to settlement documentation and court approval.
Interest rate hedging products litigation
As previously disclosed, RBS is dealing with a large number of active litigation claims in relation to the sale of interest
rate hedging products (IRHPs). In general claimants allege that the relevant interest rate hedging products were mis-sold
to them, with some also alleging RBS made misrepresentations in relation to LIBOR. Claims have been brought by customers
who were considered under the UK Financial Conduct Authority (FCA) redress programme, as well as customers who were outside
of the scope of that programme, which was closed to new entrants on 31 March 2015. RBS encouraged those customers that were
eligible to seek redress under the FCA redress programme to participate in that programme. RBS remains exposed to potential
claims from customers who were either ineligible to be considered for redress or who are dissatisfied with their redress
offers.
Property Alliance Group (PAG) v The Royal Bank of Scotland plc was the leading case before the English High Court involving
both IRHP mis-selling and LIBOR misconduct allegations. The amount claimed was approximately £33 million and the trial
ended in October 2016. On 21 December 2016 the Court dismissed all of PAG's claims. The decision (subject to any appeal by
PAG) may have significance to other similar LIBOR-related cases currently pending in the English courts, some of which
involve substantial amounts. The case of Wall v The Royal Bank of Scotland plc, which concerns similar allegations to those
in PAG is currently scheduled to go to trial in October 2017. The sum claimed is between £400 million and £700 million.
Notes
4. Litigation, investigations and reviews (continued)
Tax dispute
HMRC issued a tax assessment in 2012 against RBS for approximately £86 million regarding a value-added-tax ("VAT") matter
in relation to the trading of European Union Allowances ("EUAs") by an RBS joint venture subsidiary in 2009. RBS has
commenced legal proceedings before the First-tier Tribunal (Tax), a specialist tax tribunal, challenging the assessment
(the "Tax Dispute"). Separately, RBS is a named defendant in proceedings before the High Court brought in 2015 by ten
companies (all in liquidation) (the "Liquidated Companies") and their respective liquidators (together, "the Claimants").
The Liquidated Companies previously traded in EUAs in 2009 and are alleged to be defaulting traders within (or otherwise
connected to) the EUA supply chains forming the subject of the Tax Dispute. The Claimants are claiming approximately £72.5
million by alleging that RBS dishonestly assisted the directors of the Liquidated Companies in the breach of their
statutory duties and/or knowingly participated in the carrying on of the business of the Liquidated Companies with intent
to defraud creditors. RBS strongly denies these allegations.
LIBOR and other trading rates
In December 2016 the Swiss ComCo announced the closure of four separate investigations into RBS and certain other banks
relating to interest rate derivatives and LIBOR. RBS received full immunity for fines relating to the Swiss franc LIBOR
benchmark investigation. RBS has agreed to pay a total of CHF17.06m in fines to settle the other investigations.
On 3 February 2017, it was announced that RBS and the CFTC entered into a civil settlement resolving the CFTC's
investigation of ISDAFIX and related trading activities. As part of the settlement, RBS has paid a penalty of US$85
million and agreed to certain undertakings.
Foreign exchange related investigations
As previously disclosed, on 20 May 2015, RBS plc announced that it had reached a settlement with the DOJ in relation to
investigations into its FX business within its NatWest Markets segment. As part of its plea agreement with the DOJ, RBS plc
pled guilty in the United States District Court for the District of Connecticut to a one-count information charging an
antitrust conspiracy. On 5 January 2017, the United States District Court for the District of Connecticut imposed a
sentence on RBS plc consisting of the US$395 million criminal fine previously agreed with the DOJ and a term of probation,
which among other things, prohibits RBS plc from committing another crime in violation of US law or engaging in the FX
trading practices that form the basis for the charged crime and requires RBS plc to implement a compliance program designed
to prevent and detect the unlawful conduct at issue and to strengthen its compliance and internal controls as required by
other regulators (including the FCA and the CFTC). A violation of the terms of probation could lead to the imposition of
additional penalties. Subsequent to the sentencing, RBS plc paid the criminal fine, which had been covered by an existing
provision.
FCA review of RBS's treatment of SMEs
As previously disclosed, the FCA is conducting a review into the treatment of small and medium enterprise (SME) customers
in RBS's former Global Restructuring Group (GRG) between 2008 and 2013.
On 8 November 2016, the FCA published an update on its review. In response, RBS announced steps that will impact SME
customers in the UK and the Republic of Ireland that were in GRG between 2008 and 2013. These steps are (i) an automatic
refund of certain complex fees; and (ii) a new complaints process, overseen by an Independent Third Party. These steps have
been developed with the involvement of the FCA which agreed that they are appropriate for RBS to take.
Notes
4. Litigation, investigations and reviews (continued)
RBS estimates the costs associated with the new complaints review process and the automatic refund of complex fees to be
approximately £400 million, which has been recognised as a provision in Q4 2016. This includes operational costs together
with the cost of refunded complex fees and the additional estimated redress costs arising from the new complaints process.
The FCA has announced that its review will continue. RBS continues to cooperate fully with the review.
Payment Protection Insurance (PPI)
As previously disclosed, on 26 November 2015, the FCA issued Consultation Paper 15/39, in which it set out proposed rules
and guidance for how firms should handle PPI complaints fairly in light of the Plevin decision and how the FOS should
consider relevant PPI complaints. The Consultation Paper also contained proposals for the introduction in 2018 of a
deadline for submission of PPI complaints.
Following feedback received on its Consultation Paper, on 2 August 2016, the FCA issued a further Consultation Paper (CP
16/20) on certain aspects of the proposed rules and guidance.
Following feedback received on its second Consultation Paper (CP16/20), on 9 December 2016, the FCA issued a statement
explaining that it is carefully considering the issues raised and will make a further announcement before 31 March 2017. In
light of this statement, RBS expects that the implementation of the complaint deadline will be pushed back from end of June
2019 to 1 October or 31 December 2019. The introduction of new Plevin rules and guidance will also be delayed.
An additional provision of £601 million was taken in 2016 in response to the anticipated further delay in guidance.
UK retail banking
As previously disclosed, in November 2014, the CMA announced its decision to proceed with a market investigation reference
(MIR) into retail banking, which would cover PCA and SME banking. On 9 August 2016, the CMA published its final report. The
CMA concluded that there are a number of competition concerns in the provision of PCAs, business current accounts and SME
lending, particularly around low levels of customers searching and switching, resulting in banks not being put under enough
competitive pressure, and new products and new banks not attracting customers quickly enough. The final report sets out
remedies to address these concerns. These include remedies making it easier for customers to compare products, ensure
customers benefit from technological advantages around open banking, improve the current account switching service and
provide PCA overdraft customers with greater control over their charges along with additional measures targeted at SME
customers.
On 2 February 2017 the CMA published the Retail Banking Market Investigation Order 2017 which is the primary legal
framework setting out the obligations for the implementation of the majority of remedies, including an implementation
deadline for each. Other remedies are to be delivered via undertakings signed by Bacs and recommendations to be taken
forward by other regulators (including the FCA).
At this stage there remains uncertainty around the financial impact of the remedies once implemented and it is not
practicable to estimate the potential impact on RBS, which may be material.
Notes
4. Litigation, investigations and reviews (continued)
Enforcement proceedings and investigations in relation to Coutts & Co Ltd
The Swiss Financial Market Supervisory Authority (FINMA) has been taking enforcement proceedings against Coutts & Co Ltd, a
member of RBS incorporated in Switzerland, with regard to certain client accounts held with Coutts & Co Ltd relating to
allegations in connection with the Malaysian sovereign wealth fund 1MDB. On 2 February 2017, FINMA announced that Coutts &
Co Ltd had breached money laundering regulations by failing to carry out adequate background checks into business
relationships and transactions associated with 1MDB. FINMA accordingly required Coutts & Co Ltd to disgorge profits of CHF
6.5 million.
Coutts & Co Ltd is also cooperating with investigations and enquiries from authorities in other jurisdictions in relation
to the same subject matter. In this context, the Monetary Authority of Singapore (MAS)'s supervisory examination of Coutts
& Co Ltd's Singapore branch revealed breaches of anti-money laundering requirements. MAS imposed on Coutts & Co Ltd
financial penalties amounting to SGD 2.4 million in December 2016. The outcomes of other proceedings, investigations and
enquiries are uncertain but may include financial consequences and/or regulatory sanctions.
Notes
5. Related party transactions
UK Government
The UK Government and bodies controlled or jointly controlled by the UK Government and bodies over which it has significant
influence are related parties of the Group. The Group enters into transactions with many of these bodies on an arm's length
basis.
Bank of England facilities
In the ordinary course of business, the Group may from time to time access market-wide facilities provided by the Bank of
England.
The Group's other transactions with the UK Government include the payment of taxes, principally UK corporation tax and
value added tax; national insurance contributions; local authority rates; and regulatory fees and levies (including the
bank levy and FSCS levies).
Other related parties
(a) In their roles as providers of finance, Group companies provide development and other types of capital support to
businesses. These investments are made in the normal course of business and on arm's length terms. In some instances, the
investment may extend to ownership or control over 20% or more of the voting rights of the investee company. However, these
investments are not considered to give rise to transactions of a materiality requiring disclosure under IAS 24.
(b) The Group recharges The Royal Bank of Scotland Group Pension Fund with the cost of administration services incurred by
it. The amounts involved are not material to the Group.
Full details of the Group's related party transactions for the year ended 31 December 2016 are included in the 2016 Annual
Report and Accounts.
6. Post balance sheet events
Other than matters disclosed, there have been no further significant events between 31 December 2016 and the date of
approval of this announcement.
Statement of directors' responsibilities
The responsibility statement below has been prepared in connection with the Group's full Annual Report and Accounts for the
year ended 31 December 2016.
We, the directors listed below, confirm that to the best of our knowledge:
· the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and
fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in
the consolidation taken as a whole; and
· the Strategic Report and Directors' report (incorporating the Business review) include a fair review of the
development and performance of the business and the position of the company and the undertakings
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