- Long-awaited report on HBOS collapse published Thursday
- Number of former executives still hold regulated roles
As many as 10 former HBOS Plc executives could be banned from working in the U.K. financial services industry, following a recommendation to re-open investigations into the bank’s collapse in 2008.
The enforcement decisions taken by the now defunct 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 by London trial lawyer Andrew Green published on Thursday.
“The scope of the FSA’s enforcement investigations in relation to the failure of HBOS was not reasonable,” wrote Green, who was asked to conduct the review by regulators. “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 Banking Group Plc in 2009 and a 20.5 billion-pound ($31.3 billion) taxpayer bailout. The regulator faced criticism after it sanctioned only one former HBOS executive, Peter Cummings.
Green examined whether the regulator’s enforcement action was reasonable, while a longer report from the FSA’s successors, the Financial Conduct Authority and the Prudential Regulation Authority, looked at the failures of HBOS. The findings include that the board “lacked sufficient experience and knowledge of banking.”
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 Officer Andy Hornby. Other executives mentioned in the report include former CEO of the treasury division Lindsay Mackay and ex-head of the international division Colin Matthew.
Green said the decision not to investigate James Crosby, CEO 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 individuals because the statute of limitations has expired.
Cummings, who was head of the corporate division and HBOS’s highest-paid banker, was fined 500,000 pounds 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 Mackay, who is a director of Alpha Bank. Stevenson is a non-executive director of book retailer Waterstone’s Booksellers Ltd., while Hornby is chief executive of bookmaker Gala Coral Group Ltd. and chairman of the online pharmacy retailer Pharmacy2U. Matthew is retired.
“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 CEO 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.”
This isn’t the first time the HBOS collapse has been reviewed. British lawmakers pushed in 2013 for three top executives -- Stevenson, Crosby and Hornby -- to be banned from the market, but the regulator said at that time it considered the chances of establishing personal culpability against other individuals to be very low.
“The FCA and PRA should get on with this immediately. Parliament will expect an answer from them within months, not years,” said Andrew Tyrie, a lawmaker who chairs the Treasury committee. “This has gone on long enough, to put it mildly.”
Eight of HBOS’s former non-executive directors, including Stevenson, said in a joint statement that the report downplayed the unforeseeable effect of the financial crisis.
Benefit of Hindsight
“The report acknowledges that its judgments have been reached with the benefit of hindsight,” according to the statement, distributed by London law firm Ashurst. It “does not contain evidence that would justify any further enforcement action against executives.”
If the reports promised a tough look at HBOS’s demise, the U.K. accounting regulator didn’t get the memo. In a statement shortly after the review was issued, the Financial Reporting Council, announced that there wasn’t evidence to take action against any of HBOS’s auditors at KPMG.
“It’s all very well to say that this is the FCA and the regulatory structure has changed, yet many of the regulators remain the same,” said Jason Mansell, a trial lawyer at QEB Hollis Whiteman. “Where is their accountability? They might want to sort out their house first."
Thursday’s reports criticize the FSA’s supervisory approach for not recognizing the risks HBOS was running. In 2013, the FSA was overhauled and split to create units that oversee conduct and prudential supervision separately.
Lloyds is set to complete its return to private ownership from state control early next year. Around 6,000 current and former shareholders are suing the company and five ex-directors, including former chairman Victor Blank, alleging the lender should’ve known the HBOS acquisition wasn’t in the best interests of investors.