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Former FSA employee admits those to blame for HBOS collapse were ‘let off’

  • 19/11/2015
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Former FSA employee admits those to blame for HBOS collapse were ‘let off’
A former senior member of the Financial Services Authority (FSA) interviewed over the investigation into the failure of HBOS has admitted that ‘the people most culpable were let off’ from any enforcement action.

The unnamed interviewee’s statement surfaced during a review of the FSA’s probe into the bank’s collapse, carried out by Andrew Green QC, which found only one person, Peter Cummings CEO of the corporate division, responsible.

The former FSA employee said there was something unsatisfactory in the [initial] referral decision-making process which led to HBOS group chief executive Andy Hornby and chairman Lord Dennis Stevenson not being considered for investigation.

Green described the FSA’s decision to limit its investigation to one person as ‘not reasonable’ and said the reasoning behind this plan was ‘materially flawed’.

“…the FSA should have conducted an investigation, or series of investigations, wider in scope than merely into the conduct of Mr Cummings and the corporate division,” said Green.

The QC made a small allowance for the FSA’s execution of the investigation by stating that the mistakes were made by ‘people working under very considerable pressure in the unique context of the global financial crisis’.

He said the FSA was dealing with the regulatory consequences of the failure of a number of ‘systemically important UK institutions’ as well as dealing with its normal workload.

In his report interview, Sir Hector Sants, chief executive of the FSA from July 2007 to June 2012, said: “…the FSA was stretched almost to breaking point in terms of its resources in this period”.

The review into the now defunct regulator’s investigation spans the period of the HBOS collapse on 1 October 2008 to 12 September 2012 when the final enforcement notice was issued to Cummings. The FSA carried out two investigations; the first began 23 March 2009 into the actions of Cummings and the second into the Bank of Scotland (BoS) management and control of the corporate division which was launched over two years later on 27 May 2011.

The outcome was a £500,000 fine and partial ban for Cummings and disciplinary proceedings against BoS resulting in public censure but no financial penalty.

Green said that the FSA failed to conduct reasonable decision-making during the period from 1 October to 26 February 2009 particularly in choosing to solely focus on Cummings’ behaviour in the corporate division. It gave no consideration to the behaviour of any other former board members including Hornby and Stevenson and did not give any consideration into an investigation of HBOS itself.

Green said the former regulator should have broadened its investigation to cover the international and treasury divisions which were said to have harboured huge losses and Hornby’s conduct should have been examined from early 2009, rather than being dismissed.

The QC recommended that the Financial Conduct Authority and the Prudential Regulation Authority look into the whether any other former senior managers of HBOS should be the subject of an enforcement investigation with a view to prohibition proceedings.

The FCA and the PRA published their report of the investigation into the collapse of HBOS, started by the FSA, separately today.

The FCA confirmed earlier this week that former senior bosses at the collapsed lender would escape fines, with the regulator powerless to pass on any fines due to the time taken to complete the investigation, which was launched in 2012.

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