25Nov

In November 2015, the Financial Conduct Authority (FCA) published its report into the 2008 collapse of HBOS. The report says the major responsibility for the collapse lies with the Bank’s directors and senior management, but the former financial regulator, the Financial Services Authority (FSA), is also heavily criticised.

HBOS was the banking entity created from the 2001 merger of Halifax and Bank of Scotland.

The HBOS board is said to have pursued a growth strategy without fully appreciating the risks involved, and to have engaged in reckless lending. Many of the directors had insufficient experience of the banking sector.

Initially, the solution was thought to be Lloyds Bank’s September 2008 acquisition of HBOS, creating the new Lloyds Banking Group, but the problems at HBOS proved to be much worse than Lloyds’ due diligence had suggested. As a result, the Government was forced to shell out £20 billion in October 2008 to rescue Lloyds Banking Group, and the taxpayer took a 43% stake in the group.

According to the report, due to deficiencies in its supervisory approach, the FSA failed to understand the risks HBOS was taking, and was unable to intervene until it was too late.

Andrew Bailey, Deputy Governor of the Bank of England, CEO of the Prudential Regulation Authority and Accountable Executive for the HBOS Review said:

“The story of the failure of HBOS is important both to provide a record of an event which required a major contribution by the public purse, and because it is a story of the failure of a bank that did not undertake complicated activity or so-called racy investment banking. HBOS was at root a simple bank that nonetheless managed to create a big problem.”

At the same time a separate report by Andrew Green QC was published, which comments on the enforcement action taken by the FSA/FCA against HBOS executives. Mr Green has invited the FCA to consider whether further enforcement action is desirable, and has specifically mentioned that prohibiting individuals from working in financial services could be appropriate. The FCA will conduct a review of whether additional enforcement action is appropriate in 2016.

So far, only former HBOS head of corporate lending Peter Cummings has been banned from financial services as a result of the collapse. He was also fined £500,000. Not surprisingly, Mr Cummings feels he has been ‘singled out’.

Now, former chairman Lord Stevenson, former chief executives Sir James Crosby and Andy Hornby, former head of the Treasury division Lindsay Mackay and former finance director Mike Ellis could be amongst the candidates for an industry ban. However, of these, only Mr Ellis and Mr Mackay still work in the industry (at Skipton Building Society and Alpha Bank respectively) so any FCA prohibitions may have a limited impact. It would be up to the Insolvency Service to decide whether to ban them from acting as a director of any organisation.

However, as a six year time limit has passed, the FCA will not be able to impose any additional regulatory fines on any individuals. The time limit may have passed as a result of the need to conduct a ‘Maxwellisation’ process, allowing those criticised in the report to respond prior to publication.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.