Top Treasury officials obtained confidential information about a regulatory investigation into the taxpayer-owned Royal Bank of Scotland in order to help fix the timing of a massive sale of government shares, BuzzFeed News can reveal.
Internal emails show that John Kingman, second in command at the Treasury, sought and received information that was not publicly available about the timing of the Financial Conduct Authority’s ongoing investigation into RBS’s alleged abuse of small businesses from the head of the regulator, Martin Wheatley.
The tip-off “in the light of potential sales of RBS shares” was used to help time the shotgun sale of a £2.1 billion stake in the bank at a £1 billion loss last summer ahead of planned regulatory announcements. Negative news about the FCA’s review could have sent the share price plummeting.
In response to a request for information from Kingman the month before the sale, Wheatley had sent him a list of dates “relating to the potential publication and disclosure of information concerning the ongoing skilled person review of RBS” and urged him to “ensure it is kept confidential” because “it is not in the public domain”. The shares were offloaded on 4 August, around two weeks before the first planned announcement in “mid-August”.
The emails – obtained under Freedom of Information laws – also reveal that the FCA refused to provide the same information to the Department for Business, which had commissioned the damning report on RBS’s treatment of small businesses that triggered the FCA probe.
The banking watchdog is already facing intense scrutiny over its long-delayed RBS inquiry after BuzzFeed News and BBC Newsnight published leaked files on Monday documenting the bank’s plan to add billions of pounds to its balance sheet after the crash by draining businesses of cash and stripping their assets.
The Treasury and the FCA strongly denied that the tip about the timing of regulatory announcements was market-sensitive and insisted that, had the regulator passed on information that could have affected the share price, the sale would have been aborted. The Treasury said it contacted the FCA to ensure it was not planning on making any “major market-moving announcements” or supplying any price-sensitive information to RBS or officials in the window when they planned to sell their shares.
But politicians last night reacted furiously to the evidence of private contact between the Treasury and the regulator ahead of the sale.
Vince Cable, the former business secretary, said it was “reprehensible” that Wheatley had supplied the Treasury with information that the FCA refused to give his own department. “It does somewhat question his independence,” he said. John Mann MP, a member of the Treasury select committee, said the emails were “hugely inappropriate” and the FCA's investigation into RBS was now “totally tarnished”.
George Kerevan MP, another member of the committee, told BuzzFeed News he was “deeply shocked” by the emails, which he said “raise deep concerns regarding the independence of FCA from the executive”.
“I will be raising this point with the Treasury select committee, which has direct parliamentary oversight regarding the Treasury,” he said. “This is the proverbial can of worms. I would expect the new head of the FCA to act immediately to restore confidence in the regulatory system and assure us of the regulator’s independence.”
Tom Scholar, Treasury permanent secretary, was grilled by MPs about the emails shortly after this article was published. He told the Treasury select committee that his department had "acted entirely properly" but refused to answer further questions, promising to provide more information in writing after taking legal advice.
Kerevan said: "I expect the committee will call back Mr Scholar for further discussion".
"I am deeply shocked by what is contained in these exchanges between the regulator and the Treasury. They raise deep concerns regarding the independence of FCA from the executive."
– George Kerevan MP
In his previous role as head of UK Financial Investments (UKFI), the body set up to manage the government’s shareholdings in the banks, Kingman was closely involved in developing RBS’s plan to run off £258 billion of “non-core assets” including loans to thousands of British businesses.
Lawrence Tomlinson, the former Department for Business adviser whose damning report on RBS’s treatment of small firms triggered the FCA’s investigation three years ago, has now told BuzzFeed News that Kingman personally tried to use his position at the Treasury to stand in the way of his work, and put him under “a lot of pressure” not to publish his findings. The Treasury strongly denied this.
The FCA is the body tasked with guarding against market abuse in Britain. Under EU law, it is illegal to disclose “information of a precise nature which has not been made public” relating to any public company that would be “likely to have a significant effect” on its share price if it became known. The Treasury said the list of dates Wheatley sent Kingman was not specific enough to predict a movement in the share price.
Wheatley resigned as head of the financial regulator in July 2015, after the then chancellor, George Osborne, said he did not intend to renew his contract. Kingman quit the Treasury in April this year after being turned down for promotion to permanent secretary.
Both men declined to comment. When BuzzFeed News visited Wheatley’s home to question him about his contact with the Treasury over the RBS investigation, the former regulator slammed the door.
The first documented contact between the Treasury and the regulator came in January 2014, when emails show Donna Leong, the deputy director of the Financial Stability Group responsible for overseeing the government’s interests in RBS and Lloyds, visited the FCA and “discussed Tomlinson”.
Leong had “asked about timescales” of the regulator’s review, and in a follow-up email an FCA official had pointed her towards a public statement saying that the inquiry was likely to be finished by the third quarter of that year.
A few months later, officials from the Department for Business wrote to the regulator to ask for a meeting to discuss the inquiry. An FCA staffer wrote back agreeing to a meeting but advising: “Just to set your expectations, we will not be able to provide you with any more information about our ongoing work than is already available on our website.”
But then, the following July, Kingman weighed in. The government was now considering selling off the first chunk of its £45 billion stake in RBS, and he wanted to know whether the regulator was about to make any announcements about the review.
The RBS chief executive, Ross McEwan, had reportedly been to see the FCA in May that year to discuss the investigation and, according to Reuters, he came back shaken. McEwan was reported to have called senior executives into an urgent meeting, telling them: “I think they’ve found something.” The FCA has the power to order the banks to pay billions of pounds in compensation if they have abused their customers. An announcement before the sale of the government’s shares could have affected the price.
Wheatley wrote back to Kingman on 3 July 2015. “You asked whether the FCA considered there were any dates that HM Treasury should be made aware of relating to the potential publication and disclosure of information concerning the ongoing skilled person review of RBS,” he began. “You asked for this information in the light of potential sales of RBS shares.”
The regulatory chief was willing to oblige. He sent Kingman a list of dates on which “the FCA considers there is an increased likelihood of new information being available to RBS,” and urged him to “ensure it is kept confidential” because “it is not in the public domain”.
"You asked for this information in the light of potential sales of RBS shares. We would be grateful if you could ensure it is kept confidential."
– Martin Wheatley, FCA
The first timeframe on the list was “mid-August”. On the 4th of that month, the Treasury released £2.1 billion of its holding on to the market at 330p per share – well below the 500p price the taxpayer had paid when it bailed out the bank in 2008 – representing 5.4% of its total 83% stake. The shotgun sale represented a £1 billion loss, and many commentators questioned why the government had shortchanged the public purse by selling the shares before the price had fully recovered.
The Treasury said Kingman was following protocol by making this request to the FCA. He needed to find out when the regulator planned to make announcements about the RBS investigation to make sure the Treasury wasn’t likely to come into receipt of insider information about the contents of those announcements within the timeframe when it was planning on selling its shares. The decision to offload the shares on 4 August was made in the weeks after Kingman found out that no announcements were likely till mid-August.
“Before HM Treasury is able to carry out share sales of publicly traded banks, it has to make sure it does not hold any inside information,” it said in the statement. In order to do this, officials carry out an “inside information trawl” among public bodies to see if the department “will be in possession of inside information” or if “they are planning any major potentially market-moving announcements around the planned time of the sale”.
The statement continued: “No price sensitive information was disclosed to HMT in these communications. If price sensitive information was shared, we would have considered ourselves to hold inside information and would therefore not have executed any transaction.”
The predicted August announcement by the FCA did not materialise. Nor was anything released at the other times when Wheatley had said there was an “increased likelihood” of new information becoming public: “mid-September”, “mid/end October”, and “end-November” came and went with no news.
But on 30 November, months after Wheatley’s sudden departure, another official at the FCA wrote again to the Treasury on a thread with the subject line: “[OFFICIAL – MARKET SENSITIVE] – RBS and Lloyds inside information trawl”. The email contained further information about the timing of future announcements about the RBS investigation. “We think it appropriate to inform you that it is possible that an announcement … may take place towards the end of December,” it said.
However, there was not too much cause for alarm. “There will not be a full report by the end of 2015,” the email went on. “As we have not confirmed the content of any announcement we are not in a position to predict the potential market impact. You will, however, be aware that the Tomlinson report received significant media attention therefore it is likely that any announcement … will attract public interest.”
"We are not in a position to predict the potential market impact. You will, however, be aware that the Tomlinson report received significant media attention therefore it is likely that any announcement will attract public interest."
– FCA official
On 17 December, the FCA did make a public announcement, but only to kick back the timescale further. “The work is ongoing and good progress has been made, and all parties remain keen to complete this complex review quickly,” it said. “An announcement will be made as soon as possible in 2016.”
However, an announcement in April this year said only that, though a draft had now been prepared, there were “a number of important steps to be taken before the report is finalised”. Last week, the FCA released its latest update, announcing that the report was now complete, but that there remained “a number of steps for the FCA to complete before we are in a position to share our final findings”.
The repeated delays are likely to come under further scrutiny given the evidence in the RBS Files, which reveal that the bank’s strategy to make money when it drove businesses into its restructuring unit was laid out clearly in its policy documents, staff manuals, and financial records.
Tracey McDermott – who replaced Wheatley as head of the FCA – said under robust questioning from MPs on the Treasury select committee in April that she was not in a “position” to give a “definitive answer” about whether the report would indeed be published.
Tomlinson, the Department for Business adviser whose report on RBS triggered the FCA review, has raised concerns about Kingman’s backdoor contact with the regulator. “It appears that John Kingman, who worked for Treasury, was asking for information from the FCA about the report, which doesn't seem right to me,” Tomlinson told BuzzFeed News. “My recollection of John Kingman goes back probably about three years where he was very vociferously arguing for me not to publish my report.”
Tomlinson said he had been called to a meeting with Kingman ahead of publishing his report in which the official “was very angry about the report and indicated that it will be better if I didn't publish it”.
The independence of the FCA’s investigation into RBS has already been repeatedly called into question, after the regulator appointed the consultancy firm Promontory to conduct much of the work. Promontory paid $15 million to settle a dispute with the US regulators last year after it was found to have made changes to “soften” an internal review it had been hired to conduct into sanctions-busting and money laundering by Standard Chartered Bank.
The FCA quickly ran into difficulties after appointing Promontory, when the RBS GRG Business Action Group, which represents 379 firms that allege they were harmed or destroyed by the bank’s behaviour, said it was “not appropriate” that it had been asked to share evidence with a firm accused of “whitewashing”.
The FCA said in a statement: “Neither the email from the FCA to HMT on 3 July at 8.49am or on 30 November 2015 at 09.49 contains any price sensitive information or inside information. The contact with HMT concerned only the possible timing of any public announcement and was not relevant to our overall approach to GRG. At no time have HMT influenced, or sought to influence, the outcome of our work.”
The Treasury statement said: “The FCA has never shared any information regarding the content of the investigation with HMT, other than the expected timing of the conclusions. To be absolutely clear, HMT does not hold any information and has never sought any information regarding the ongoing investigation by the FCA, other than the expected timing, which is a matter of public record.
“Neither HMT nor any of its officials have ever expressed a view to the FCA regarding the outcome or content of the ongoing investigation. The ongoing investigation falls solely within the remit of FCA."
It said the departures of Wheatley and Kingman from their jobs were in no way related to the emails. “For completeness, the career decisions taken by John Kingman and Martin Wheatley are issues entirely for those individuals, and we would therefore state that these two issues are entirely separate. As set out in this letter, we refute any accusation of wrongdoing of any kind by individuals or HMT.”
In a statement following the publication of the RBS Files, the bank denied it had profited by destroying small businesses during the recession, but acknowledged, for the first time, that “a number of our customers did not receive the level of service they should have done” in GRG.
“We could have managed the transition to GRG better and we could have better explained to customers any changes to the prices or fees we were charging,” it said. “We also did not always handle customer complaints well. As a result, a number of our customers did not receive the level of service they should have done or, importantly, that they would receive now.”
But RBS still insisted “GRG’s role was to protect the bank’s position, where possible, by working with distressed businesses to return them to financial health”, and said it had seen “nothing to support the allegations that the bank artificially distressed otherwise viable SME businesses [small- and medium-sized enterprises] or deliberately caused them to fail”.
UPDATE
In a further statement sent after the publication of this article, a Treasury spokesman said: “These claims are incorrect and show a complete misunderstanding of how market abuse regulations work. Before the Government is able to sell shares it holds in publicly traded banks, it ensures it does not hold any inside information on the bank and related sectors, consistent with its legal obligations. The emails released by HM Treasury shows it followed the rules and nobody in the organisation was in possession of any inside information regarding the potential sale of RBS shares.”
