Regulators Face New Pressure Over HBOS Probe

by Bella Palmer

A report on HBOS’s collapse has been delayed so long that none of its former bosses can face financial penalties

Banking regulators will face renewed pressure over their handling of an inquiry into the collapse of HBOS next week.

It has emerged that they are now powerless to fine any former executives judged to have been responsible for the mortgage lender’s taxpayer bailout.

A six-year statute of limitations means the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) are unable to impose fines on those who ran HBOS during the 2004-2008 period covered by their probe.

Insiders said the only sanctions open to the regulators would be to seek a ban from the financial services industry for any former executives deemed to have been sufficiently culpable.

The authorities’ report runs to approximately 500 pages, and will be published alongside a separate 100-page document produced by Andrew Green QC, who has examined the reasonableness of the former Financial Services Authority’s decision to pursue enforcement action against only one former HBOS manager.

Peter Cummings, who ran the bank’s ill-fated corporate lending division, was fined £500,000 and banned for life from the industry in 2011.

Lord Stevenson, HBOS’s former chairman, and ex-chief executives James Crosby and Andy Hornby, will all be criticised in next week’s report, but the grounds for seeking a lifetime ban against any or all of them are questionable, some regulatory lawyers say.

The FSA’s supervision of the bank will also be severely criticised.

The three men, and other former HBOS directors, have been informed through their legal representatives that they will not be allowed to see the final report until it is made public on Thursday, according to insiders.

HBOS had to be rescued by a £20.5bn capital injection from taxpayers into Lloyds Banking Group, which rescued the UK’s biggest mortgage lender after its ability to access wholesale market funding dried up.

The news that regulators will be unable to impose financial penalties will intensify questions about why they failed to commission the official inquiry until the Treasury Select Committee pressured them to do so in 2012.

The report’s publication has been delayed by more than a year of legal wrangling, with a process known as Maxwellisation – which allows those criticised in official inquiries to challenge their conclusions – responsible for much of the hold-up.

Earlier this year, Sky News revealed that lawyers acting for individuals who face criticism in the final report had argued that Iain Cornish should not continue in his role as a scrutineer of regulators’ work because of his recently relinquished directorship of the PRA.

Mr Cornish and Stuart Bernau, a former Nationwide executive, were appointed as independent reviewers of the HBOS report by the Treasury committee in March 2013 – six months after work formally commenced on the official inquiry into HBOS’s downfall.

An earlier report by the Parliamentary Commission on Banking Standards, which described HBOS’s troubles as “an accident waiting to happen”, led to Mr Crosby relinquishing his knighthood and part of his £580,000-a-year pension.

“There is now a reasonable prospect that the public will at least have an opportunity for a full explanation of this catastrophic failure,” Andrew Tyrie, the Treasury committee chairman, said this week.

“For the first time, Parliament…has appointed its own specialist advisers and placed them inside the regulators, to monitor the preparatory work on this report.

“The work of the advisers can give Parliament and the public more confidence that the role of the FSA, in the failure of HBOS, will have been fully disclosed.”

Mr Green’s conclusions, and the regulators’ response to them, are likely to be the most closely watched aspects of next week’s inquiry.

According to the terms of reference, the QC will “offer an opinion…as to whether the regulators should consider afresh whether any other former members of HBOS’s senior management should be subject to an investigation with a view to prohibition proceedings”.

The FCA, PRA and representatives of the former HBOS executives all declined to comment.


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