RBS’s Russian goof sets tone for UK state meddling

October 18, 2016

The author is a Reuters Breakingviews columnist.  The opinions expressed are his own.

The UK is learning what happens when business and politics mix. Broadcaster RT, formerly known as Russia Today, kicked up a fuss on Oct. 17 by suggesting political interference in a decision by Royal Bank of Scotland’s NatWest subsidiary to discontinue banking services with an unnamed supplier. As it happens, the British government is readying to play a closer role in corporate life. The RBS goof shows the downside of that strategy.

RBS’s decision may be strictly business. With economic crime penalties set to increase, banks are wary of clients that could in future raise regulatory eyebrows. Barclays last year stopped providing banking services to Russian news agency Rossiya Segodnya, whose head was on a European Union sanctions list. Even though it is quite strongly capitalised, RBS is awaiting a potentially huge fine from U.S. regulators for alleged mortgage mis-selling, and can’t afford further hits.

The catch is that Britain’s own regulator Ofcom has censured RT in the past for a lack of accuracy and impartiality. And the UK’s 73 percent stake in RBS lays it open to suspicion. Although the bank is technically at arm’s length from the government, via an entity called UK Financial Investments, the government has loomed large in decisions like bonus policy. Given the tensions in Ukraine and Syria, it’s not impossible that RBS would be used as a way to rattle Russia’s cage – in a similar way to Moscow’s penchant for flying its military aircraft in UK airspace.

The UK government has distanced itself from such Machiavellianism. If anything, RBS’s somewhat flip-flopping response – it is now reviewing its relationship and may yet continue to bank RT’s supplier – does not suggest a smooth piece of geopolitical power politics.

What it does imply is a potential problem with UK Prime Minister Theresa May’s likely direction after Britain leaves the EU. Carmakers like Nissan who operate in the UK have demanded compensation to ease any post-Brexit fallout. Other sectors like finance might also receive government help to ease the shock from quitting the EU. That suggests greater scope for future muddied waters between the public and private sectors – which, given the ham-fisted handling of the current situation, sounds far from ideal.

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