The Royal Bank of Scotland has had to pay $150m to the Securities and Exchange Commission in a settlement over some allegations that it did not undertake proper checks while selling $2.2billion bond that was backed by residential mortgages. Royal Bank of Scotland agreed to a $150m settlement with the United States regulators over claims that it did not follow the right procedures when selling the $2.2 billion bonds that were backed by mortgages.
The lender was facing charges from the Commission for leading the sale of mortgage backed securities to various investors without checking the underlying loans’ credit quality. Royal Bank of Scotland was able to earn fees totaling to $4.4m for working as an underwriter in the sale of the bonds but the SEC has indicate that around 30% of loans that were included in the portfolio should never have been included in the first place.
According to the co-director of the enforcement division of the SEC, George Canellos, RBS cut corners and do not undertake the due diligence in a rush to meet the deadline that the seller of the loans had set. Under the settlement, RBS was to pay $106m to the authorities for illegally obtaining the profits and a fine of $48.2m as well.
RBS securities a subsidiary of RBS did not deny not admit the allegations made by RBS although the bank has indicated that it would cooperate fully with the Securities and Exchange Commission during the investigations. Other banks have also had to pay several million dollars after reaching settlements with the SEC for similar complaints of lack of proper representation of mortgage portfolios.
RBS settlement came almost as it ha its credit rating reduced by Standard & Poor’s after an announcement of its restructuring plan that will have the bank accelerate the sell of all its toxic assets.