The FCA found that BOS failed both to be open and cooperative and to disclose information appropriately to ex-regulator, the Financial Services Authority (FSA).
Mark Steward, executive director of enforcement and market oversight at the FCA, said the bank’s failures delayed investigations by the regulator and Thames Valley Police so neither justice or the consumers who deserved compensation were served.
BOS first identified suspicious conduct in the IAR team in early 2007 finding that Lynden Scourfield had been signing off lending beyond his authority undetected for at least three years. BOS also knew by 3 May 2007 that the impact of these breaches would result in substantial losses to BOS.
The regulator said: “Over the next two years, on numerous occasions, BOS failed properly to understand and appreciate the significance of the information that it had identified despite clear warning signs that fraud might have occurred. There was insufficient challenge, scrutiny or inquiry across the organisation and from top to bottom.”
It added that no-one at the bank properly considered the situation or the consequences of not informing the authorities.
It took until July 2009, two years later, that BOS provided the FSA with full disclosure in relation to its suspicions, including the report of the investigation it had conducted in 2007.
The FSA reported the matter to the National Crime Agency, then the Serious Organised Crime Agency, on 26 June 2009.
In 2017, following an investigation by Thames Valley Police, six individuals including Lynden Scourfield and another BOS employee, Mark Dobson, were sentenced for their part in the fraud committed through the IAR.
Despite the fact commercial lending remains largely unregulated in the UK the bank should have been ‘open and cooperative with the FSA, and the FSA would reasonably have expected to have been notified of BOS’s suspicions that a fraud may have been committed in May 2007,’ it said.
The FCA has also today banned four individuals from working in financial services due to their role in the fraud at HBOS Reading: Lynden Scourfield, Mark Dobson, Alison Mills and David Mills.
Following the failure of the HBOS Group in October 2008 it was formally acquired by Lloyds TSB on 16 January 2009 and BOS became part of the merged Lloyds Banking Group (LBG). The FCA’s investigation has focused on BOS’s conduct before it became part of LBG.
In 2012 FSA imposed a public censure on Bank of Scotland for failures related to its corporate banking
In May 2017, television presenter Noel Edmonds sent a claim letter to Lloyds Banking Group’s CEO Antonio Horta-Osario seeking £70m in compensation following the HBOS fraud and jailed banker.
Edmonds asserted that HBOS and its former employee, Mark Dobson, were behind the collapse of his business Unique Group 10 years ago.
Ex-senior banker David Mills, 60, and HBOS employee Lynden Scourfield, 54, mis-directed indebted companies to a fraudulent advisory service, paid themselves millions of pounds and enjoyed lavish lifestyles and incurred HBOS £250m of losses.
Another HBOS manager, Mark Dobson, the banker named by Edmonds in his case, also played a part in the crime, which saw him receive £30,000 in kickbacks from Mills. He has subsequently been jailed for four and a half years and banned from financial services.
Many of the businesses advised by Mills and loaned money by Scourfield went into liquidation resulting in job losses, financial hardship, marital breakdowns, loss of homes and serious ill-health for the individuals involved.