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FSA censures Bank of Scotland

The FSA has publicly censured Bank of Scotland and judged that the firm was guilty of “very serious misconduct” which contributed to the Government having to bail out HBOS.

The regulator has said today that it has concluded its investigation into HBOS which examined its failure during the financial crisis.

The censure is against HBOS subsidiary Bank of Scotland, owned by Lloyds Banking Group, and relates to the conduct of its corporate division between January 2006 and December 2008.

The FSA has not levied a fine against HBOS, but says the severity of Bank of Scotland’s failing would normally have merited a fine. However, it says because public funds have already been used to address the consequences of Bank of Scotland’s misconduct, levying a penalty on the enlarged HBOS Group means the taxpayer would effectively pay twice for the same actions committed by the firm.

The regulator says that between January 2006 and March 2008 Bank of Scotland’s corporate division pursued an “aggressive growth strategy” that focused on high-risk, sub-investment grade lending.  During the period the division’s transactions increased in size, complexity and risk.  Its portfolio was high risk with highly concentrated exposures to property and posed risk to significant large borrowers.  

Rather than evaluating its business model in the wake of deteriorating market conditions in 2007, the division pushed for a great market share as other lenders started to pull out of the market.

The FSA says Bank of Scotland was focused on revenue rather than assessing risk.

It says that from April 2008, as it became apparent that high value transactions were demonstrating signs of stress, it should have been apparent to Bank of Scotland that a more prudent approach was needed to mitigate risk, yet it was slow to move such transactions to its high risk area within its corporate division. There was a significant risk that this would have an impact on the firm’s capital requirements.

It also meant the full extent of the stress within the corporate portfolio was not visible to the group’s board or auditors.

The FSA adds Bank of Scotland’s provisions in relation to the corporate division were consistently more optimistic than prudent.

The FSA has closed this enforcement action against HBOS, but says other enforcement proceedings in connection with the failure of HBOS are ongoing.

It says it will produce a public interest report into the causes of HBOS’ failure once these other enforcement proceedings have concluded.

FSA acting director of enforcement Tracey McDermott says: “Banks and other firms have to manage their business by ensuring that their systems and controls are appropriate for the risks that they are running.  

“The conduct of the Bank of Scotland illustrates how a failure to meet regulatory requirements can end not just in massive costs to a firm, but losses to shareholders, taxpayers and the economy.”

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. “…and what’s more said the Fat Controller” I’m very, very cross and you will go without your supper!

  2. I think some aspects of this censure (such as not focussing on risk) can be applied to Lloyds Bank, in relation to its take over of HBOS. However I guess that this would be a bit too close to home for the FSA to comment on – – .

  3. “Banks and other firms have to manage their business by ensuring that their systems and controls are appropriate for the risks that they are running” ??

    Is it NOT the FSA’s Job to ensure these “Systems and Controls” are in place and work for this very reason.

    As for NO Fine……………….

    Fine the Directors, you would if it was an IFA practice.

    Talk about coming up smelling of Roses

  4. Not good enough !!

    Fine the directors and fine the failed FSA for missing the whole thing whilst looking at TCF.

    And as for McDermott’s statement -:

    “Banks and other firms have to manage their business by ensuring that their systems and controls are appropriate for the risks that they are running.

    Look a bit closer to home !! The FSA have failed not only the country but the very consumers they are there to protect

  5. dont bother with the ‘public interest report’ please, save our money. It will serve no purpose other than to wind people up.

  6. Lindsay Bateman 9th March 2012 at 2:57 pm

    It is consumers, tax payers, lower level banking staff, shareholders and investors that continue to pay the real price for the poor systems, controls and lack of transparency pervasive across the industy…

  7. What was the point then of spending more public money to produce a report that tells us what exactly? That the Bank got it wrong and the FSA didn’t do its job. They could have given me a couple of million and I could have told them that.

    As previously stated all senior staff involved at both organisations should be fined, prosecuted and at the very least be banned for 20 years from ever holding such senior positions within organisations again. However, as the corruption endemic in this country gets even worse we will find that they will have all received handsome payoffs and pensions and be carrying similar roles elsewhere.

    Crime doesn’t pay, unless you work high up in the white collar world, then it’s rather rewarding.

  8. One rule for one and one for another. If this had been found in a small IFA., they would have been hung dwawn and quartered. Concentrating on trying to get rid of IFA,s and us paying them to do it. Smells of nepotism to me again.

  9. “levying a penalty on the enlarged HBOS Group means the taxpayer would effectively pay twice for the same actions committed by the firm”. All penalties would be paid out of bank profits anyway, which effectively come from their taxpaying customers. What the FSA is saying is that one way or another we all pay to keep the champagne flowing.

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