The Royal Bank of Scotland (RBS) has set aside £249m to cover compensation payments for investment advice and mis-selling of structured deposit investments to retail investors, according to the bank's 2015 annual results report, published on Friday 26, 2016. RBS marketed over 90 tranches of the Autopilot range in the UK market, of which 45 structures are still live, according to SRP data.

The £249m is to cover redress to investors in the bank's Autopilot range, said an RBS spokesperson. "We've written to the 24,000 affected customers, and given them the option of closing, switching to a fixed interest rate, or staying on the original Autopilot terms and conditions," said the spokesperson. "The vast majority (83% of customers) changed to a fixed interest rate."

The UK bank announced, in early 2015, that it was offering compensation of £70m to 24,000 customers after admitting to the mis-selling of its range of Autopilot structured products, although it was expected that the overall amount invested into these products was higher. RBS confirmed that, of the £249m provisioned to date for these matters, £73m had been used by December 31, 2015.

According to the bank's latest financial results, in February 2013, the FSA (now the UK Financial Conduct Authority -FCA) unveiled the findings of a mystery shopping review into the investment advice offered by banks and building societies to retail clients, which revealed a series of shortcomings in the advice provided by RBS. '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),' said the UK regulator, which 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 and NatWest, from March 2012 until December 2012'.

The Autopilot product, which was sold through the bank's financial planning and advice service, is a 'complex product' and was offered in the past 'to customers who may not have been able to fully understand it', according to the bank, which published an apology and told the FCA that the product had been 'removed from sale' and that RBS/Natwest advisors had been retrained. Following discussions with the FCA after the 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 the present'.

The bank's results state that RBS will be writing to the 'relevant customers' during 2016, and agreed with the regulator that it would carry out a 'remediation exercise to clients' that were sold the Autopilot product, 'in response to concerns raised by the FCA with regard to the target market for the product and how the product may have been described to customers by certain advisers'.

Despite RBS acknowledging mis-selling, the autopilot range was a good set of products, according to a former RBS banker who had invested in the range. "I think this is more a question of RBS reviewing everything that was offered that wasn't a fixed rate bond following its decision to take that route for the future," said the banker. "The bank is retrospectively offering, to those invested in these products, to move to a fixed income alternative or remained invested. RBS decided to move to a plain vanilla set up around investment solutions for retail investors, and is offering investors invested in equity-linked products the possibility of moving to fixed income. RBS made provisions in the context of PPI mis-selling, and this move looks like them lumping in the Autopilot range to get it off its books."

RBS launched the dynamic products in 2009 exclusively through its dedicated IFA platform. The 'new generation of dynamic strategies' was designed to address issues such as asset class allocation, whether to go long or short, and how to maximise volatility or lock in potential income.

The bank used Keydata as the plan manager for the first series of products, but turned to NDFA for this second. Keydata was also the third party provider of the first three products from RBS's IFA platform: Autopilot Plan, Navigator Plan and Skyline Plan.

In addition to the redress provisions, RBS posted an annual loss of £1.9bn on the back of 'elevated restructuring costs' in corporate and investment banking (£2.9bn), and provisions around litigation and conduct costs (£3.5bn): corporate and investment banking made an adjusted operating loss of £55m, compared with an adjusted operating profit of £233m in 2014, driven by lower income in line with the business's reduced scale and risk appetite, said the bank.

RBS reached an agreement with BNP Paribas in early 2014 on the sale of certain assets and liabilities from RBS's structured retail investor products and equity derivatives, which did not include the Autopilot range.

Click here to read the full 2015 RBS results.

Related stories:

Autopilot proves reverse enquiry value

Natwest International flies more UK Autopilots

UK RBS IFA service aims for the sky

RBS promotes 'emotion-free' investment

RBS pushes into continental Europe on Autopilot