REG - Royal Bk Scot.Grp. - Half Year Report - Part 1 <Origin Href="QuoteRef">RBS.L</Origin> - Part 9

NatwestAnnouncement

05/08/2016 07:07

- Part 9: For the preceding part double click  ID:nRSE3368Gh 

defendants are taking to the United States
Court of Appeals for the Second Circuit, though post-judgment interest on the judgment amount will accrue while the appeal
is pending. RBS Securities Inc. intends to pursue a contractual claim for indemnification against Nomura with respect to
any losses it suffers as a result of this matter. 
 
The National Credit Union Administration Board (NCUA) is litigating two MBS cases against RBS companies (on behalf of US
Central Federal Credit Union and Western Corporate Federal Credit Union). The original principal balance of the MBS at
issue in these two NCUA cases is US$3.25 billion. 
 
Other remaining MBS lawsuits against RBS companies include, among others, cases filed by the Federal Home Loan Banks of
Boston and Seattle. 
 
RBS companies are also defendants in a purported MBS 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.
Another MBS class action (Luther v. Countrywide Financial Corp. et al. and related class action cases) was settled in 2013
without any contribution from RBS, and a subsequent appeal of the new court-approved settlement by several members of the
settlement class was, at the request of the parties, dismissed on 24 May 2016. 
 
Notes 
 
15. Litigation, investigations and reviews (continued) 
 
Additional settlement costs or provisions related to the MBS litigation, as well as the investigations into MBS-related
conduct involving RBS set out under 'Investigations and reviews' on page 94, may be necessary in future periods for amounts
that could be substantial in some instances and in aggregate could be substantially in excess of the existing provisions. 
 
In many of the securitisation and securities related cases in the US, RBS has or will have contractual claims to
indemnification from the issuers of the securities (where an RBS company is underwriter) and/or the underlying mortgage
originator (where an RBS company is issuer). The amount and extent of any recovery on an indemnification claim, however, is
uncertain and subject to a number of factors, including the ongoing creditworthiness of the indemnifying party, a number of
whom are or may be insolvent. 
 
London Interbank Offered Rate (LIBOR) 
 
Certain members of the Group have been named as defendants in a number of class actions and individual claims filed in the
US with respect to the setting of LIBOR and certain other benchmark interest rates. The complaints are substantially
similar and allege that certain members of the Group and other panel banks individually and collectively violated various
federal laws, including the US commodities and antitrust laws, and state statutory and common law, as well as contracts, by
manipulating LIBOR and prices of LIBOR-based derivatives in various markets through various means. 
 
Most of the USD LIBOR-related actions in which RBS companies are defendants, including all purported class actions relating
to USD LIBOR, were transferred to a coordinated proceeding in the United States District Court for the Southern District of
New York. 
 
In the coordinated proceeding, consolidated class action complaints were filed on behalf of (1) exchange-based purchaser
plaintiffs, (2) over-the-counter purchaser plaintiffs, and (3) corporate debt purchaser plaintiffs. Over 35 other USD
LIBOR-related actions naming RBS as a defendant, including purported class actions on behalf of lenders and mortgage
borrowers, were also made part of the coordinated proceeding. 
 
In a series of orders issued in 2013 and 2014, the district court overseeing the coordinated USD proceeding dismissed class
plaintiffs' antitrust claims and claims under RICO (Racketeer Influenced and Corrupt Organizations Act), but declined to
dismiss (a) certain Commodity Exchange Act claims on behalf of persons who transacted in Eurodollar futures contracts and
options on futures contracts on the Chicago Mercantile Exchange (on the theory that defendants' alleged persistent
suppression of USD LIBOR caused loss to plaintiffs), and (b) certain contract and unjust enrichment claims on behalf of
over-the-counter purchaser plaintiffs who transacted directly with a defendant.  On 23 May 2016, the district court's
dismissal of plaintiffs' antitrust claims was vacated by the United States Court of Appeals for the Second Circuit, which
held that plaintiffs have adequately pled antitrust injury and an antitrust conspiracy, but remanded to the lower court for
further consideration on the question of whether plaintiffs possess the requisite antitrust standing to proceed with
antitrust claims. The district court is in the process of considering that question. In addition, the district court, which
previously issued additional orders broadly addressing other potential grounds for dismissal of various of plaintiffs'
claims, including dismissal for lack of personal jurisdiction, is now in the process of applying these rulings across
plaintiffs' claims (including the antitrust claims), subject to further submissions from the parties. 
 
Notes 
 
15. Litigation, investigations and reviews (continued) 
 
Certain members of the Group have also been named as defendants in class actions relating to (i) JPY LIBOR and Euroyen
TIBOR (one case relating to Euroyen TIBOR futures contracts and one relating to other derivatives allegedly linked to JPY
LIBOR and Euroyen TIBOR), (ii) Euribor, (iii) Swiss Franc LIBOR (iv) Pound sterling LIBOR, and (v) the Singapore Interbank
Offered Rate and Singapore Swap Offer Rate, all of which are pending before other judges in the United States District
Court for the Southern District of New York. Each of these matters is subject to motions to dismiss that are currently
pending, with the exception that on 28 March 2014, the Court in the action relating to Euroyen TIBOR futures contracts
dismissed the plaintiffs' antitrust claims, but declined to dismiss their claims under the Commodity Exchange Act for price
manipulation. 
 
Details of LIBOR investigations involving RBS are set out under 'Investigations and reviews' on page 95. 
 
ISDAFIX antitrust litigation 
 
Beginning in September 2014, The Royal Bank of Scotland plc (RBS plc) and a number of other financial institutions were
named as defendants in several purported class action complaints (subsequently consolidated into one complaint) in the
United States District Court for the Southern District of New York alleging manipulation of USD ISDAFIX rates In 2015, RBS
plc reached an agreement to settle this matter for US$50 million, and that settlement received preliminary approval from
the Court on 11 May 2016. The settlement amount has been paid into escrow pending the final court approval of the
settlement. 
 
Credit default swap antitrust litigation 
 
Certain members of the Group, as well as a number of other financial institutions, are defendants in a consolidated
antitrust class action pending in the United States District Court for the Southern District of New York alleging an
unlawful restraint of trade in the market for credit default swaps. An agreed US$33 million settlement received final
approval from the Court on 18 April 2016 and has been paid. 
 
FX antitrust litigation 
 
In 2015, Group companies settled a consolidated antitrust class action (the "consolidated action"), pending in the United
States District Court for the Southern District of New York, asserting claims on behalf of persons who entered into (a)
over-the-counter foreign exchange (FX) spot transactions, forwards, swaps, futures, options or other FX transactions the
trading or settlement of which is related in any way to FX rates, or (b) exchange-traded FX instruments. Following the
Court's preliminary approval of the settlement on 15 December 2015, RBS paid the total settlement amount (US$255 million)
into escrow pending final court approval of the settlement. On 8 June 2016, the Court denied a motion by the settling
defendants to enjoin a second FX-related antitrust class action pending in the same court from proceeding, holding that the
alleged class of "consumers and end-user businesses" in that action is not included within the classes at issue in the
consolidated action.  RBS anticipates moving to dismiss the claims in this "consumer" action.  A third FX-related class
action, asserting Employee Retirement Income Security Act claims on behalf of employee benefit plans that engaged in FX
transactions against RBS and others, is pending in the same court. On 15 July 2016, the plaintiffs in that case filed an
amended complaint purporting to assert claims based on alleged  non-collusive FX-related conduct, which RBS anticipates
moving to dismiss on various grounds. 
 
Notes 
 
15. Litigation, investigations and reviews (continued) 
 
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.
On 31 May 2016, the plaintiffs in the Ontario action filed a motion seeking class certification. 
 
Certain other foreign exchange transaction related claims have been or may be threatened against RBS in other
jurisdictions. RBS cannot predict whether any of these claims will be pursued, but expects that several may. 
 
US Treasury securities antitrust litigation 
 
Beginning in July 2015, numerous class action antitrust complaints were filed in US federal courts against a number of
primary dealers of US Treasury securities, including RBS Securities Inc.  The complaints allege that the defendants rigged
the US Treasury securities auction bidding process to deflate prices at which they bought such securities and colluded to
increase the prices at which they sold such securities to plaintiffs.  The complaints assert claims under the US antitrust
laws and the Commodity Exchange Act on behalf of persons who transacted in US Treasury securities or derivatives based on
such instruments, including futures and options. On 8 December 2015, all pending matters were transferred to the United
States District Court for the Southern District of New York for coordinated or consolidated pretrial proceedings. RBS
anticipates making a motion to dismiss the claims asserted in these matters. 
 
Interest rate swaps antitrust litigation 
 
Beginning in November 2015, RBS plc and other members of the Group, as well as a number of other interest rate swap
dealers, were named as defendants in a number of class action antitrust complaints filed in the United States District
Court for the Southern District of New York and the United States District Court for the Northern District of Illinois. The
complaints, filed on behalf of persons who entered into interest rate swaps with the defendants, allege that the defendants
violated the US antitrust laws by restraining competition in the market for interest rate swaps through various means and
thereby caused inflated bid-ask spreads for interest rate swaps, to the alleged detriment of the plaintiff class.  In
addition, two complaints containing similar allegations of collusion were filed in United States District Court for the
Southern District of New York on behalf of TeraExchange and Javelin, who allege that they would have successfully
established exchange-like trading of interest rate swaps if the defendant dealers had not unlawfully conspired to prevent
that from happening through boycotts and other means, in violation of the U.S. antitrust laws. On 2 June 2016, all of these
matters were transferred to the United States District Court for the Southern District of New York for coordinated or
consolidated pretrial proceedings. 
 
RBS anticipates making a motion to dismiss the claims asserted in these matters. 
 
Notes 
 
15. Litigation, investigations and reviews (continued) 
 
Madoff 
 
In December 2010, Irving Picard, as trustee for the bankruptcy estates of Bernard L. Madoff and Bernard L. Madoff
Investment Securities LLC., filed a clawback claim against The Royal Bank of Scotland N.V. (RBS N.V.) in the New York
bankruptcy court. In the operative complaint, filed in August 2012, the trustee seeks to recover US$75.8 million in
redemptions that RBS N.V. allegedly received from certain Madoff feeder funds and US$162.1 million that RBS N.V. allegedly
received from its swap counterparties at a time when RBS N.V. allegedly 'knew or should have known of Madoff's possible
fraud'. The Trustee alleges that those transfers were preferences or fraudulent conveyances under the US bankruptcy code
and New York law and he asserts the purported right to claw them back for the benefit of Madoff's estate. A further claim,
for US$21.8 million, was filed in October 2011. This matter is subject to pre-discovery motions to dismiss the claims
against RBS N.V.. 
 
Thornburg adversary proceeding 
 
RBS Securities Inc. and certain other RBS companies, as well as several other financial institutions, are defendants in an
adversary proceeding filed in the US bankruptcy court in Maryland by the trustee for TMST, Inc. (formerly known as
Thornburg Mortgage, Inc.). The trustee seeks recovery of transfers made under certain restructuring agreements as, among
other things, avoidable fraudulent and preferential conveyances and transfers. On 25 September 2014, the Court largely
denied the defendants' motion to dismiss this matter and, as a result, discovery is ongoing. 
 
CPDO Litigation 
 
Claims have been served on RBS N.V. in England, the Netherlands and Australia, relating to the sale of a type of structured
financial product known as a constant proportion debt obligation (CPDO). The claims in the Netherlands have been stayed
pending the outcome of the claim in England. 
 
Interest rate hedging products litigation 
 
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 v The Royal Bank of Scotland plc is the leading case currently in trial in the English High Court
involving both IRHP mis-selling and LIBOR misconduct allegations. The claim is for approximately £33 million and the trial
is currently scheduled to last until October 2016. The outcome of the claim may have significance to other similar
LIBOR-related cases currently pending in the English courts, some of which involve substantial amounts, as well as any
potential future similar claims. 
 
Notes 
 
15. Litigation, investigations and reviews (continued) 
 
In addition to claims alleging that IRHPs were mis-sold, RBS has received a number of claims involving allegations that it
breached a legal duty of care in its conduct of the FCA redress programme. These claims have been brought by customers who
are dissatisfied with redress offers made to them through the FCA redress programme. The claims followed a preliminary
decision against another UK bank. RBS has since been successful in opposing an application by a customer to amend its
pleadings to include similar claims against RBS, on the basis that the bank does not owe a legal duty of care to customers
in carrying out the FCA review. The customer has been granted leave to appeal by the Court of Appeal, and the appeal is
scheduled for May 2017. 
 
Weiss v. National Westminster Bank Plc (NatWest) 
 
NatWest is defending a lawsuit filed by a number of US nationals (or their estates, survivors, or heirs) who were victims
of terrorist attacks in Israel. The plaintiffs allege that NatWest is liable for damages arising from those attacks
pursuant to the US Anti-terrorism Act because NatWest previously maintained bank accounts and transferred funds for the
Palestine Relief & Development Fund, an organisation which plaintiffs allege solicited funds for Hamas, the alleged
perpetrator of the attacks. On 28 March 2013, the trial court (the United States District Court for the Eastern District of
New York) granted summary judgment in favour of NatWest on the issue of scienter, but on 22 September 2014, that summary
judgment ruling was vacated by the United States Court of Appeals for the Second Circuit. The appeals court returned the
case to the trial court for consideration of NatWest's other asserted grounds for summary judgment and, if necessary, for
trial. On 31 March 2016, the trial court denied a motion by NatWest to dismiss the case in which NatWest had argued that
the court lacked personal jurisdiction over NatWest. The schedule for the remainder of the matter, including trial, has not
been set, but NatWest intends to assert other grounds for summary judgment that the trial court has not previously ruled
upon. 
 
Freeman v. HSBC Holdings PLC and others 
 
On 10 November 2014, RBS N.V. and certain other financial institutions (HSBC, Barclays, Standard Chartered, Credit Suisse,
and Bank Saderat) were named as defendants in a complaint filed by a number of US nationals (or their estates, survivors,
or heirs), most of whom are or were US military personnel, who were killed or injured in more than 70 attacks in Iraq
between 2004 and 2011. The attacks were allegedly perpetrated by Hezbollah and certain Iraqi terror cells allegedly funded
by the Islamic Republic of Iran. According to the plaintiffs' allegations, RBS N.V. and the other defendants are liable for
damages arising from the attacks because they allegedly conspired with Iran and certain Iranian banks to assist Iran in
transferring money to Hezbollah and the Iraqi terror cells, in violation of the US Anti- terrorism Act, by agreeing to
engage in "stripping" of transactions initiated by the Iranian banks so that the Iranian nexus to the transactions would
not be detected. On 2 April 2015, the plaintiffs filed an amended complaint adding Commerzbank as an additional defendant.
On 29 May 2015, the defendants filed a motion to dismiss the amended complaint in this matter. 
 
Notes 
 
15. Litigation, investigations and reviews (continued) 
 
Investigations and reviews 
 
RBS's businesses and financial condition can be affected by the actions of various governmental and regulatory authorities
in the UK, the US, the EU and elsewhere. RBS has engaged, and will continue to engage, in discussions with relevant
governmental and regulatory authorities, including in the UK, the US, the EU and elsewhere, on an ongoing and regular
basis, and in response to informal and formal inquiries or investigations, regarding operational, systems and control
evaluations and issues including those related to compliance with applicable laws and regulations, including consumer
protection, business conduct, competition/anti-trust, anti-bribery, anti-money laundering and sanctions regimes. The CIB
segment in particular has been providing information regarding a variety of matters, including, for example, the setting of
benchmark rates and related derivatives trading, conduct in the foreign exchange market, and various issues relating to the
issuance, underwriting, and sales and trading of fixed-income securities, including structured products and government
securities. Any matters discussed or identified during such discussions and inquiries may result in, among other things,
further inquiry or investigation, other action being taken by governmental and regulatory authorities, increased costs
being incurred by RBS, remediation of systems and controls, public or private censure, restriction of RBS's business
activities and/or fines. Any of the events or circumstances mentioned in this paragraph or below could have a material
adverse effect on RBS, its business, authorisations and licences, reputation, results of operations or the price of
securities issued by it. 
 
RBS is co-operating fully with the investigations and reviews described below. 
 
Loan securitisation business investigations 
 
In the US, RBS is involved in reviews, investigations and proceedings (both formal and informal) by federal and state
governmental law enforcement and other agencies and self-regulatory organisations, including the DOJ and various other
members of the RMBS Working Group of the Financial Fraud Enforcement Task Force (including several state attorneys general,
including those mentioned below), relating to, among other things, issuance, underwriting and trading in mortgage-backed
securities, collateralised debt obligations (CDOs), collateralised loan obligations (CLOs) and synthetic products. 
 
In connection with these inquiries, Group companies have received requests for information and subpoenas seeking
information about, among other things, the structuring of CDOs, financing to loan originators, purchase of whole loans,
sponsorship and underwriting of securitisations, due diligence, representations and warranties, communications with ratings
agencies, disclosure to investors, document deficiencies, trading activities and practices and repurchase requests. 
 
Notes 
 
15. Litigation, investigations and reviews (continued) 
 
These ongoing matters include, among others, active investigations by the civil and criminal divisions of the DOJ and the
office of the attorney general of Connecticut, on behalf of the Connecticut Department of Banking, relating primarily to
due diligence on and disclosure related to loans purchased for, or otherwise included in, securitisations and related
disclosures. On 31 August 2015, the Connecticut Department of Banking issued two letters to RBS Securities Inc., indicating
that it has concluded that RBS Securities Inc. may have violated the Connecticut Uniform Securities Act when underwriting
MBS, and noting RBS plc's May 2015 FX-related guilty plea.  In June 2016, RBS Securities Inc. and the Connecticut
Department of Banking reached an agreement in principle to resolve the matters referred to in the letters, subject to
agreement on settlement documentation, that will require, among other things, certain undertakings that are to be agreed
and the payment of an amount in settlement of the investigation pertaining to the underwriting of MBS.  The settlement
amount agreed in principle is fully covered by an existing provision. 
 
The investigations also include civil and criminal investigations relating to alleged misrepresentations in the trading of
various forms of asset-backed securities, including residential mortgage-backed securities, commercial mortgage-backed
securities, CDOs, and CLOs. In March and December 2015, two former RBS Securities Inc. 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 RBS Securities Inc. 
 
In 2007, the New York State Attorney General issued subpoenas to a wide array of participants in the securitisation and
securities industry, focusing on the information underwriters obtained from the independent firms hired to perform due
diligence on mortgages. RBS completed its production of documents requested by the New York State Attorney General in 2008,
principally producing documents related to loans that were pooled into one securitisation transaction. 
 
In May 2011, the New York State Attorney General requested additional information about RBS's mortgage securitisation
business and, following the formation of the RMBS Working Group, has focused on the same or similar issues as the other
state and federal RMBS Working Group investigations described above. The investigation is ongoing and RBS continues to
respond to requests for information. 
 
At this stage, as there remains considerable uncertainty around the outcome of MBS-related regulatory and governmental
investigations it is not practicable reliably to estimate the aggregate potential impact on RBS which is expected to be
material. 
 
US mortgages - loan repurchase matters 
 
RBS's CIB business in North America was a purchaser of non-agency US residential mortgages in the secondary market, and an
issuer and underwriter of non-agency residential mortgage-backed securities (MBS). 
 
In issuing MBS, CIB in some circumstances made representations and warranties regarding the characteristics of the
underlying loans. As a result, CIB may be, or may have been, contractually required to repurchase such loans or indemnify
certain parties against losses for certain breaches of such representations and warranties. Depending on the extent to
which such loan repurchase related claims are pursued against and not rebutted by CIB on timeliness or other grounds, the
aggregate potential impact on RBS, if any, may be material. 
 
Notes 
 
15. Litigation, investigations and reviews (continued) 
 
LIBOR and other trading rates 
 
In February 2013, RBS announced settlements with the Financial Services Authority (FSA) in the UK, the United States
Commodity Futures Trading Commission (CFTC) and the United States Department of Justice (DOJ) in relation to investigations
into submissions, communications and procedures around the setting of LIBOR. RBS agreed to pay penalties of £87.5 million,
US$325 million and US$150 million to these authorities respectively to resolve the investigations and also agreed to
certain undertakings in its settlement with the CFTC. As part of the agreement with the DOJ, RBS plc entered into a
Deferred Prosecution Agreement (DPA) in relation to one count of wire fraud relating to Swiss Franc LIBOR and one count for
an antitrust violation relating to Yen LIBOR. The DPA expired in April 2015 and is of no further effect. 
 
In April 2013, RBS Securities Japan Limited entered a plea of guilty to one count of wire fraud relating to Yen LIBOR and
in January 2014, the US District Court for the District of Connecticut entered a final judgment in relation to the
conviction of RBS Securities Japan Limited pursuant to the plea agreement. 
 
In February 2014, RBS paid settlement penalties of approximately E260 million and E131 million to resolve investigations by
the European Commission (EC) into Yen LIBOR competition infringements and EURIBOR competition infringements respectively.
This matter is now concluded. 
 
In July 2014, RBS entered into an Enforceable Undertaking with the Australian Securities and Investments Commission (ASIC)
in relation to potential misconduct involving the Australian Bank Bill Swap Rate. RBS made various undertakings and agreed
to make a voluntary contribution of A$1.6 million to fund independent financial literacy projects in Australia. 
 
In October 2014, the EC announced its findings that (1) RBS and one other financial institution had participated in a
bilateral cartel aimed at influencing the Swiss Franc LIBOR benchmark interest rate between March 2008 and July 2009; and
(2) RBS and three other financial institutions had participated in a related cartel on bid-ask spreads of Swiss Franc
interest rate derivatives in the European Economic Area (EEA). RBS received full immunity from fines. 
 
RBS is co-operating with investigations and requests for information by various other governmental and regulatory
authorities, including in the UK, US and Asia, into its submissions, communications and procedures relating to a number of
trading rates, including LIBOR and other interest rate settings, and non-deliverable forwards. 
 
RBS is providing information and documents to the CFTC as part of its investigation into the setting of USD and EUR ISDAFIX
and related trading activities. RBS understands that the CFTC investigation is at an advanced stage. RBS is also under
investigation by competition authorities in a number of jurisdictions stemming from the actions of certain individuals in
the setting of LIBOR and other trading rates, as well as interest rate-related trading. At this stage, as there remains
considerable uncertainty around the outcome of these investigations, it is not practicable to estimate the aggregate impact
reliably, if any, on RBS which may be material. 
 
Notes 
 
15. Litigation, investigations and reviews (continued) 
 
Foreign exchange related investigations 
 
In November 2014, RBS plc reached a settlement with the FCA and the CFTC in relation to investigations into failings in
RBSG plc's FX businesses within its CIB segment. RBS plc agreed to pay penalties of £217 million to the FCA and US$290
million to the CFTC to resolve the investigations. The fines were paid on 19 November 2014. 
 
On 20 May 2015, RBS plc announced that it had reached settlements with the DOJ and the Board of Governors of the Federal
Reserve System (Federal Reserve) in relation to investigations into its FX business within its CIB segment. RBS plc paid a
penalty of US$274 million to the Federal Reserve and has agreed to pay a penalty of US$395 million to the DOJ to resolve
the investigations. The DOJ fine is fully covered by existing provisions. 
 
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. RBS plc admitted that it knowingly, through one of
its euro/US dollar currency traders, joined and participated in a conspiracy to eliminate competition in the purchase and
sale of the euro/US dollar currency pair exchanged in the FX spot market. 
 
The charged conspiracy occurred between as early as December 2007 to at least April 2010. Pursuant to the plea agreement
(which is publicly available), the DOJ and RBS plc have agreed jointly to recommend to the Court that it impose a sentence
consisting of a US$395 million criminal fine and a term of probation, which among other things, would prohibit 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 require 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). If
RBS plc is sentenced to a term of probation, a violation of the terms of probation could lead to the imposition of
additional penalties. 
 
RBS plc and RBS Securities Inc. have also entered into a cease and desist order with the Federal Reserve relating to FX and
other designated market activities (the FX Order). In the FX Order, which is publicly available and will remain in effect
until terminated by the Federal Reserve, RBS plc and RBS Securities Inc. agreed to take certain remedial actions with
respect to FX activities and certain other designated market activities, including the creation of an enhanced written
internal controls and compliance program, an improved compliance risk management program, and an enhanced internal audit
program. RBS plc and RBS Securities Inc. are obligated to implement and comply with these programs as approved by the
Federal Reserve, and are also required to conduct, on an annual basis, a review of applicable compliance policies and
procedures and a risk-focused sampling of key controls. 
 
RBS is responding to investigations and inquiries from other governmental and regulatory (including competition)
authorities on similar issues relating to failings in its FX business within its CIB segment, including with respect to
potential collateral consequences of the RBS plc guilty plea described above. The timing and amount of financial penalties
with respect to any further settlements and related litigation risks and collateral consequences remain uncertain and could
be material. 
 
Notes 
 
15. Litigation, investigations and reviews (continued) 
 
On 21 July 2014, the Serious Fraud Office in the UK (SFO) announced that it was launching a criminal investigation into
allegations of fraudulent conduct in the foreign exchange market, apparently involving multiple financial institutions. On
15 March 2016, the SFO announced that it was closing its investigation, having concluded that, based on the information and
material obtained, there was insufficient evidence for a realistic prospect of conviction. 
 
Interest rate hedging products (IRHP) redress programme 
 
In June 2012, following an industry wide review, the FSA announced that RBS and other UK banks had agreed to a redress
exercise and past business review in relation to the sale of interest rate hedging products to some small and medium sized
businesses classified as retail clients or private customers under FSA rules. 
 
In January 2013, the FSA issued a report outlining the principles to which it wished RBS and other UK banks to adhere in
conducting the review and redress exercise. This exercise is being scrutinised by an independent reviewer, KPMG (appointed
as a Skilled Person under section 166 of the Financial Services and Markets Act), who is reviewing and approving all
outcomes, and the FCA is overseeing this. RBS has reached agreement with KPMG in relation to redress determinations for all
in scope customers. The review and redress exercise was closed to new entrants on 31 March 2015. An outcome has been agreed
with the Skilled Person in the majority of the consequential loss claims received. RBS and KPMG are now focussing on 
assessing the remaining consequential loss claims in preparation for closure of the review. As at the end of June 2016, 97%
of all review files had been closed. 
 
The Central Bank of Ireland also requested Ulster Bank Ireland Limited (now Ulster Bank Ireland DAC), along with a number
of Irish banks, to undertake a similar exercise and past business review in relation to the sale of IRHP to retail
designated small and medium sized businesses in the Republic of Ireland. RBS also agreed to undertake a similar exercise
and past business review in respect of relevant customers of RBS International. The reviews undertaken in respect of both
RBS International customers and Ulster Bank Ireland DAC customers are complete. 
 
RBS provisions in relation to the above redress exercises total £1.5 billion to date for these matters, of which £1.4
billion had been utilised at 30 June 2016. 
 
Judicial Review of Skilled Person's role in IRHP review 
 
RBS has been named as an interested party in a number of claims for judicial review of KPMG's decisions as Skilled Person
in RBS's previously disclosed IRHP redress programme. This follows a similar claim from a customer of another UK bank, also
against KPMG. 
 
All of these claims were stayed pending the outcome of the other bank's case. The trial in that case was heard on 25
January 2016. The court decided in favour of KPMG, finding that (1) KPMG is not a body amenable to judicial review in
respect of its role as Skilled Person in this matter; and (2) that there was no unfairness by the other bank in the
procedure adopted. The claimant has sought permission to appeal the decision. 
 
Notes 
 
15. Litigation, investigations and reviews (continued) 
 
The majority of the claims that name RBS as an interested party have been discontinued but there are still several cases
which remain stayed pending the outcome of any appeal in the other bank's case. If permission to appeal is granted and the
appeal court finds that a section 166-appointed Skilled Person is susceptible to judicial review, these remaining claims
against RBS may then proceed to full hearing to assess the fairness of KPMG's role in the redress programme in those
particular cases. If deemed unfair, this could have a consequential impact on the reasonableness of the methodology applied
to reviewed and settled IRHP files generally. 
 
As there remains some uncertainty, it is not practicable reliably to estimate the impact of this matter, if any, on RBS
which may be material. 
 
Conclusion of Crown Office investigation into RBS 
 
On 12 May 2016, the Crown Office and Procurator Fiscal Service in Scotland announced that it had concluded its
investigation into RBS's 2008 rights issue and that it had found insufficient evidence of criminal conduct either in
relation to RBS as an institution or any directors or other senior management involved in the rights issue. The Crown
Office indicated that, if any further evidence comes to light which is relevant to its enquiry, it will be considered by
the Crown and that it reserves the right to make further enquiry, if considered appropriate. 
 
Investment advice review 
 
In February 2013, the FSA announced the results of a mystery shopping review it undertook into the investment advice
offered by banks and building societies to retail clients. As a result of that review the FSA announced that firms involved
were cooperative and agreed to take immediate action. RBS was one of the firms involved. 
 
The action required included a review of the training provided to advisers, considering whether changes are necessary to
both advice processes and controls for new business, and undertaking a past business review to identify any historic poor
advice (and where breaches of regulatory requirements are identified, to put this right for customers). 
 
Subsequent to the FSA announcing the results of its mystery shopping review, the FCA has required RBS to carry out a past
business review and customer contact exercise on a sample of historic customers that received investment advice on certain
lump sum products through the UK Financial Planning channel of the Personal & Business Banking (PBB) segment of RBS, which
includes RBS plc and NatWest, during the period from March 2012 until December 2012. 
 
This review was conducted under section 166 of the Financial Services and Markets Act, under which a Skilled Person was
appointed to carry out the exercise. Redress has been paid to certain customers in this sample group. Following discussions
with the FCA after issue of the draft section 166 report, RBS agreed with the FCA that it would carry out a wider
review/remediation exercise relating to certain investment, insurance and pension sales from 1 January 2011 to present. RBS
has started writing to the relevant customers during 2016 and the project is due to finish in Q4 2017. In addition, RBS
agreed with the FCA that it would carry out a remediation exercise, for a specific customer segment who were sold a
particular structured product, in response to concerns raised by the FCA with regard to (a) the target market for the
product and (b) how the product may have been described to customers by certain advisers. Redress has been paid to certain
customers who took out the structured product. 
 
Notes 
 
15. Litigation, investigations and reviews (continued) 
 
RBS provisions in relation to investment advice total £249 million to date for these matters, of which £92 million had been
utilised at 30 June 2016. 
 
Packaged accounts 
 
As a result of an uplift in packaged current account complaints, RBS proactively put in place dedicated resources in 2013
to investigate and resolve complaints on an individual basis. RBS has made gross provisions totalling £307 million to date
for this matter. 
 
FCA review of RBS's treatment of SMEs 
 
In November 2013, a report by Lawrence Tomlinson, entrepreneur in residence at the UK Government's Department for Business
Innovation and Skills, was published ("Tomlinson Report"). The Tomlinson Report was critical of RBS's treatment of SMEs. 
 
The Tomlinson Report was passed to the PRA and FCA. Shortly thereafter, the FCA announced that an independent Skilled
Person would be appointed under section 166 of the Financial Services and Markets Act to review the allegations in the
Tomlinson Report. On 17 January 2014, a Skilled Person was appointed. The Skilled Person's review is focused on RBS's UK
small and medium sized business customers with credit exposures of up to £20 million whose relationship was managed within
RBS's Global Restructuring  Group or within similar units within RBS's Corporate Banking Division that were focused on
customers in financial difficulties. In the period 2008 to 2013 RBS was one of the leading providers of credit to the UK
SME sector. 
 
Separately, in November 2013, RBS instructed the law firm Clifford Chance to conduct an independent review of the principal
allegation made in the Tomlinson Report: RBS was alleged to be culpable of systematic and institutional behaviour in
artificially distressing otherwise viable businesses and, through that, putting businesses into insolvency. Clifford Chance
published its report on 17 April 2014 and, while it made certain recommendations to enhance customer experience and
transparency of pricing, it concluded that there was no evidence to support the principal allegation. 
 
A separate independent review of the principal allegation, led by Mason Hayes & Curran, Solicitors, was conducted in the
Republic of Ireland. The report was published in December 2014 and found no evidence to support the principal allegation. 
 
RBS is cooperating fully with the FCA in its review. 
 
The Skilled Person review focuses on the allegations made in the Tomlinson Report and certain observations made by Sir
Andrew Large in his 2013 Independent Lending Review, and is broader in scope than the reviews undertaken by Clifford Chance
and Mason, Hayes & Curran which are referred to above. The Skilled Person delivered the draft findings from its review to
the FCA in March 2016. RBS has since been given the opportunity to consider and respond to those draft findings before the
Skilled Person delivers its final report to the FCA. In the event that, after considering the Skilled Person's final
report, the FCA concludes that there were material failings in RBS's treatment of SME customers those conclusions could,
depending on their nature, scale and type, result in the commencement of regulatory enforcement action by the FCA, the
imposition of redress requirements and the commencement of litigation claims against RBS, as well as potentially leading to
wider investigations and litigation related to RBS's treatment of customers in financial difficulty. 
 
Notes 
 
15. Litigation, investigations and reviews (continued) 
 
At this stage, as there remains considerable uncertainty around the final conclusions of the Skilled Person's review and
any collateral consequences thereof, it is not practicable reliably to estimate the potential impact on RBS. 
 
Multilateral interchange fees 
 
On 11 September 2014, the Court of Justice upheld earlier decisions by the EU Commission and the General Court that
MasterCard's multilateral interchange fee (MIF) arrangements for cross border payment card transactions with MasterCard and
Maestro branded consumer credit and debit cards in the EEA are in breach of competition law. 
 
In April 2013, the EC announced it was opening a new investigation into interchange fees payable in respect of payments
made in the EEA by MasterCard cardholders from non-EEA countries. 
 
In May 2013, the EC announced it had reached an agreement with Visa regarding immediate cross border credit card MIF rates.
This agreement has now been market tested and was made legally binding on 26 February 2014. The agreement is to last for
four years. 
 
In addition, on 8 June 2015, a regulation on interchange fees for card payments entered into force. The regulation requires
the capping of both cross-border and domestic MIF rates for debit and credit consumer cards. The regulation also sets out
other reforms including to the Honour All Cards Rule which require merchants to accept all cards with the same level of MIF
but not cards with different MIF levels. 
 
In the UK, the Office of Fair Trading (OFT) had previously opened investigations into domestic interchange fees applicable
in respect of Visa and MasterCard consumer and commercial credit and debit card transactions. On 6 May 2015, the successor
body to the OFT, the Competition & Markets Authority (CMA), announced that it had closed these investigations on the
grounds of administrative priorities. 
 
There remains uncertainty around the outcomes of the ongoing EC investigation, and regulation, but they may have a material
adverse effect on the structure and operation of four party card payment schemes in general and, therefore, on RBS's
business in this sector. 
 
Payment Protection Insurance (PPI) 
 
Since 2011, RBS has been implementing a policy statement agreed with the FCA for the handling of complaints about the
mis-selling of PPI. RBS is also monitoring developments following the UK Supreme Court's decision in the case of Plevin v
Paragon Personal Finance Ltd in November 2014. That decision was that the sale of a single premium PPI policy could create
an 'unfair relationship' under s.140A of the Consumer Credit Act 1974 (the 'Consumer Credit Act') because the premium
contained a particularly high level of undisclosed commission. 
 
Notes 
 
15. Litigation, investigations and reviews (continued) 
 
The Financial Ombudsman Service (FOS) has confirmed on its website that unfair relationship provisions in the Consumer
Credit Act and the Plevin judgment are 'potentially relevant considerations' in some of the PPI complaints referred to
FOS. 
 
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 on a date to be confirmed of a
deadline for submission of PPI complaints. RBS submitted its response to the Consultation Paper on 26 February 2016. 
 
The proposals in the Consultation Paper included an FCA-led communications campaign to raise awareness of the deadline and
to prompt those who intend to complain to act ahead of the deadline. 
 
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. Given the further consultation process and timing, it is now
expected that the complaint deadline would be end of June 2019 rather than 2018 as proposed in the initial Consultation
Paper. The deadline for responding to Consultation Paper 16/20 is 11 October 2016.  RBS is considering its response. 
 
If the proposals are agreed and implemented, RBS would expect higher claims volumes, persisting longer than previously
modelled, and additional compensation payments in relation to PPI claims made as a result of the Plevin judgment. 
 
If the end of June 2019 deadline is implemented by the FCA, complaints made after that time would lose the right to be
assessed by firms or by the Financial Ombudsman Service, bringing an end to new PPI cases at the end of June 2019. 
 
RBS has made provisions totalling £4.7 billion to date for PPI claims, including an additional provision of £400 million in
H1 2016, in response to Consultation Paper 16/20. Of the £4.7 billion cumulative provision, £3.5 billion had been utilised
by 30 June 2016. 
 
UK retail banking 
 
In March 2014, the CMA announced that it would be undertaking an update of the OFT's 2013 personal current account (PCA)
market study, in parallel with its market study into small and medium-sized enterprise (SME) banking which was announced in
June 2013. In July 2014 the CMA published its preliminary findings in respect of both the PCA and SME market studies. The
CMA provisionally decided to make a market investigation reference (MIR) into retail banking which would cover PCA and SME
banking.  In November 2014, the CMA made its final decision to proceed with a MIR. In October 2015 the CMA published a
summary of its provisional findings and notice of possible remedies. 
 
The CMA provisionally 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 notice of possible remedies sets out measures to address these concerns, including measures to make it easier for
customers to compare products, and requiring banks to help raise public awareness of, and confidence in, switching bank
accounts. 
 
Notes 
 
15. Litigation, investigations and reviews (continued) 
 
On 7 March 2016, the CMA announced that it was extending the MIR by 3 months with a revised statutory deadline of 12 August
2016. The CMA also published a supplemental notice of possible remedies which sets out four additional remedies focussed on
PCA overdrafts, in addition to the remedies set out in the October 2015 notice of possible remedies. On 17 May 2016, the
CMA published its provisional decision on remedies. The CMA has provisionally decided upon remedies which are broadly
similar to those set out in its October 2015 notice of possible remedies, and its March 2016 supplemental notice of
possible remedies. The period to respond to the provisional decision on remedies closed on 7 June 2016. The CMA is
scheduled to publish its final report on 9 August 2016. 
 
Alongside the MIR, the CMA is also reviewing the undertakings given by certain banks following the Competition Commission's
2002 investigation into SME banking (SME Undertakings) as well as the 2008 Northern Ireland PCA Banking Market
Investigation Order 2008. On 17 May 2016, the CMA announced its provisional decisions for these reviews, including the
complete revocation of the Northern Ireland PCA Banking Market Investigation Order 2008, as well as the revocation of all
the SME Undertakings other than the prohibition on banks requiring the bundling (i.e. selling) together of business current
accounts and SME lending. The CMA is expected to publish its final decisions on 9 August 2016. 
 
At this stage as there remains uncertainty around the final outcome of these reviews it is not practicable reliably to
estimate the potential impact on RBS, which may be material. 
 
FCA Wholesale Sector Competition Review 
 
On 9 July 2014, the FCA launched a review of competition in the wholesale sector to identify any areas which may merit
further investigation through an in-depth market study. 
 
The initial review was an exploratory exercise and focused primarily on competition in wholesale securities and investment
markets, and related activities such as corporate banking. It commenced with a three month consultation exercise, including
a call for inputs from stakeholders. Following this consultation period, the FCA published its feedback statement on 19
February 2015 which announced that the FCA is to undertake a market study into investment and corporate banking and
potentially into asset management. The terms of reference for the investment and corporate banking market study were
published on 22 May 2015. On 13 April 2016, the FCA published its interim report on the investment and corporate banking
market study which sets out various proposed remedies, including the following: measures designed to improve clients'
ability to appoint banks that best suit their needs; measures to ensure that conflicts are properly managed; and
improvements to the Initial Public Offering (IPO) process. The FCA has indicated that it will publish its final report in
Summer 2016. 
 
On 18 November 2015, the FCA also announced that a market study would be undertaken into asset management. The FCA has said
that it intends to publish an interim report in Summer 2016 with the final report expected in early 2017. 
 
At this stage, as there remains considerable uncertainty around the outcome of these reviews it is not practicable reliably
to estimate the aggregate impact, if any, on RBS which may be material. 
 
Notes 
 
15. Litigation, investigations and reviews (continued) 
 
Governance and risk management consent order 
 
In July 2011, RBS agreed with the Board of Governors of the Federal Reserve System, the New York State Banking Department,
the Connecticut Department of Banking, and the Illinois Department of Financial and Professional Regulation to enter into a
consent Cease and Desist Order (Governance Order) (which is publicly available) to address deficiencies related to
governance, risk management and compliance systems and controls in the US branches of RBS plc and RBS N.V. branches (the US
Branches). 
 
In the Governance Order, RBS agreed to create the following written plans or programmes: 
 
Key points 
 
 ·  a plan to strengthen board and senior management oversight of the corporate governance, management, risk management, and operations of RBS's US operations on an enterprise-wide and business line basis,                                                                                                                                                     
 ·  an enterprise-wide risk management programme for RBS's US operations                                                                                                                                                                                                                                                                                          
 ·  a plan to oversee compliance by RBS's US operations with all applicable US laws, rules, regulations, and supervisory guidance                                                                                                                                                                                                                                 
 ·  a Bank Secrecy Act/anti-money laundering compliance programme for the US Branches on a consolidated basis                                                                                                                                                                                                                                                     
 ·  a plan to improve the US Branches' compliance with all applicable provisions of the Bank Secrecy Act and its rules and regulations as well as the requirements of Regulation K of the Federal Reserve                                                                                                                                                         
 ·  a customer due diligence programme designed to ensure reasonably the identification and timely, accurate, and complete reporting by the US Branches of all known or suspected violations of law or suspicious transactions to law enforcement and supervisory authorities, as required by applicable suspicious activity reporting laws and regulations, and  
 ·  a plan designed to enhance the US Branches' compliance with Office of Foreign Assets Control (OFAC) requirements.                                                                                                                                                                                                                                             
 
 
The Governance Order identified specific items to be addressed, considered, and included in each proposed plan or
programme. RBS also agreed in the Governance Order to adopt and implement the plans and programmes after approval by the
regulators, to comply fully with the plans and programmes thereafter, and to submit to the regulators periodic written
progress reports regarding compliance with the Governance Order. 
 
RBS has created, submitted, and adopted plans and/or programmes to address each of the areas identified above. In
connection with RBS's efforts to implement these plans and programmes, it has, among other things, made investments in
technology, hired and trained additional personnel, and revised compliance, risk management, and other policies and
procedures for RBS's US operations. RBS continues to test the effectiveness of the remediation efforts it has undertaken to
ensure they are sustainable and meet regulators' expectations. Furthermore, RBS continues to work closely with the
regulators in its efforts to fulfil its obligations under the Governance Order, which will remain in effect until
terminated by the regulators. 
 
RBS may be subject to formal and informal supervisory actions and may be required by its US banking supervisors to take
further actions and implement additional remedial measures with respect to these and additional matters. RBS's activities
in the US may be subject to significant limitations and/or conditions. 
 
Notes 
 
15. Litigation, investigations and reviews (continued) 
 
US dollar processing consent order 
 
In December 2013 RBS and RBS plc agreed a settlement with the Federal Reserve, the New York State Department of Financial
Services (DFS), and the Office of Foreign Assets Control (OFAC) with respect to RBS plc's historical compliance with US
economic sanction regulations outside the US. As part of the settlement, RBS and RBS plc entered into a consent Cease and
Desist Order with the Federal Reserve (US Dollar Processing Order), which remains in effect until terminated by the Federal
Reserve. The US Dollar Processing Order (which is publicly available) indicated, among other things, that RBS and RBS plc
lacked adequate risk management and legal review policies and procedures to ensure that activities conducted outside the US
comply with applicable OFAC regulations. 
 
RBS agreed to create an OFAC compliance programme to ensure compliance with OFAC regulations by RBS's global business lines
outside the US, and to adopt, implement, and comply with the programme. Prior to and in connection with the US Dollar
Processing Order, RBS has made investments in technology, hired and trained personnel, and revised compliance, risk
management, and other policies and procedures. 
 
Under the US Dollar Processing Order (as part of the OFAC compliance programme) RBS was required to appoint an independent
consultant to conduct an annual review of OFAC compliance policies and procedures and their implementation and an
appropriate risk-focused sampling of US dollar payments. RBS appointed the independent consultant and their reports were
submitted to the authorities on 14 June 2015. The independent consultant review examined a significant number of sanctions
alerts and no reportable issues were identified. 
 
Pursuant to the US Dollar Processing Order, the authorities requested a second annual review to be conducted by an
independent consultant. The review is underway and is due to be completed by the end of 2016. In addition, pursuant to
requirements of the US Dollar Processing Order, RBS has provided the required written submissions, including quarterly
updates, in a timely manner, and RBS continues to participate in a constructive dialogue with the authorities. 
 
US/Swiss tax programme 
 
In August 2013, the DOJ announced a programme for Swiss banks (the Programme) 

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