James Daley

By James Daley

In the world of financial fines, today's £15m penalty handed down to Royal Bank of Scotland for giving poor mortgage advice, is small beer. Compared to the £390m fine that it received for its role in the Libor scandal, it's little more than a parking ticket. And next to the £3.2bn it has put aside for PPI mis-selling, it's lost change down the back of the sofa.

But the big difference between Libor, PPI and today's fine is that its latest misdemeanours were carrying on as recently as last year - five years after the Bank was taken almost entirely into the UK government's ownership.

When RBS was bailed out back in 2008, the UK government took a stake of over 80%. To manage this investment - along with its 25% stake in Lloyds, and some of the bad parts of Northern Rock and Bradford & Bingley - the Treasury set up a new company called UK Financial Investments. UKFI was set three core objectives: to get back as much money as possible for the UK taxpayer; to maintain financial stability in the banking system; and to promote competiton in the sector in a way that was beneficial for consumers.

Consumers were never at the heart of UKFI's mission

Perhaps alarm bells should have been ringing when when these objectives were set. Although its mandate included some broad commitment to increase competition, its principle focus on getting back as much money as possible - as quickly as possible - was always likely to be at odds with creating a banking sector that puts customers first, and which looks to deliver long-term, not simply short-term, value for its shareholders.

From the very beginning, UKFI seemed to lack some of the key skills that it might need to help rebuild a failing high street bank. The board was loaded with fund managers and investment bankers - but no one with a track record of successfully running a high street banking operation. Six years on, things look even worse. Of the seven board members today, five - including the chief executive - are former investment bankers, one is a civil servant and just one has any significant experience in the retail banking industry, and even then, it is not the UK retail banking industry.

When it comes to RBS, UKFI has resolutely failed at achieving its objectives - other than perhaps ensuring that (so far) RBS does not precipitate another financial crisis. The Government bought its stake when shares in RBS were trading at around 500p - around 50% higher than they are today - and it is getting harder to argue that responsibility for the perpetual destruction in shareholder value (and of course taxpayer value) does not lie with UKFI.

Time for a shake up?

As today's fine demonstrates, by March last year the bank had not even begun the hard work of rebuilding its retail business so that customers came first. Initiatives such as the RBS Customer Charter were little more than marketing ploys - and while things seem to be finally changing under Ross McEwan, it's astonishing that the work is only beginning six years after the bank nearly collapsed.

McEwan and his team may well come in for some criticism today. But since he took over as CEO in October last year, there are some promising signs that things are genuinely changing. It is no thanks to the UK government or UKFI, however, who have been complicit in allowing RBS and the banking sector at large to drag their heels on the much needed reforms. It would be encouraging to see someone like Natalie Ceeney, the former head of the Financial Ombudsman Service, on the board of UKFI, or someone else who is there to champion consumer interests. If we continue with a board of investment bankers who are baying for a better return, there's every chance it will continue to come at the expense of consumers.