HBOS report urges reopening investigation into failed bank

As many as 10 former HBOS executives could be banned from working in the UK financial services industry, following recommendations to re-open investigations in a new report on the bank's collapse in 2008.

The enforcement decisions taken by former regulator, the Financial Services Authority, after HBOS failed were "materially flawed" and the agency should have conducted a wider probe of those responsible, according to a report authored by London trial lawyer Andrew Green and published on Thursday.

HBOS operated Bank of Scotland (Ireland) in the Republic.

“The scope of the FSA’s enforcement investigations in relation to the failure of HBOS was not reasonable,” Mr Green wrote.

“There is plainly a public interest in this being considered afresh.”

Two reports were published as part of a review of one of the most controversial episodes of Britain's financial crisis which led to a state-brokered takeover from Lloyds in 2009 and a taxpayer bailout. The regulator faced criticism after it sanctioned only one former HBOS executive, Peter Cummings.

Mr Green examined whether the extent of the regulator's enforcement action was reasonable, while a longer report from the Financial Conduct Authority and the Prudential Regulation Authority looked at the failures of HBOS and made six recommendations for firms and regulators.

Fresh investigation

In his conclusions, Mr Green said the regulators should now consider investigating, with a view to prohibition from the industry, former senior managers including, but not limited to, ex-chairman Dennis Stevenson and ex-chief executive Andy Hornby. Other executives mentioned in the report include former chief executive of the treasury division Lindsay Mackay and ex-head of the international division Colin Matthew.

Mr Green said the decision not to investigate James Crosby, chief executive of HBOS until 2006, was reasonable because he left the firm before its collapse.

The PRA and FCA said in a statement they will decide whether to pursue further enforcement action as early as possible next year. The agencies won’t be able to fine any more individuals because the statute of limitations has expired. Mr Cummings, who was head of the corporate division and the HBOS’s highest-paid banker, was fined £500,000 (€713,000) in September 2012 and banned from working in the industry.

At least seven former HBOS managers still hold regulated functions in the financial services industry, including Mr Mackay, who is a director of Alpha Bank. Mr Stevenson is a non-executive director of book retailer Waterstones, Mr Hornby is chief operating officer of betting firm Coral, while Mr Matthew is retired.

‘Big Problem’

"HBOS was at root a simple bank that nonetheless managed to create a big problem," Andrew Bailey, deputy governor of the Bank of England and chief executive of the PRA said in a statement.

“The board and senior executive management of HBOS failed to set an appropriate strategy, and also failed to challenge a flawed business model.”

Thursday’s reports criticise the FSA’s supervisory approach for not recognising the risks HBOS was running.

Lloyds required £20.5 billion of taxpayer funds to save it from failure following the takeover of HBOS. The bank is set to complete its return to private ownership from state control early next year.

Bloomberg