FCA fines Bank of Scotland £45.5m (R827m) for failing to report suspicions of fraud at HBOS Reading

The UK's Financial Conduct Authority (FCA) on 21 June 2019 fined Bank of Scotland (BOS) £45,500,000 for failures to disclose information about its suspicions that fraud may have occurred at the Reading-based Impaired Assets (IAR) team of Halifax Bank of Scotland.

'The FCA found that BOS failed to be open and cooperative and failed to disclose information appropriately to the then regulator, the Financial Services Authority (FSA).'

Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said:

‘Bank of Scotland failed to alert the regulator and the police about suspicions of fraud at its Reading branch when those suspicions first became apparent.​​​​​ BOS’s failures caused delays to the investigations by both the FCA and Thames Valley Police. There is no evidence anyone properly addressed their mind to this matter or its consequences. The result risked substantial prejudice to the interests of justice, delaying scrutiny of the fraud by regulators, the start of criminal proceedings as well as the payment of compensation to customers.’

Commercial lending was and still is largely unregulated in the UK which meant that the activities of IAR were not subject to specific rules imposed by the FSA. For example, conduct of business rules and complaints handling rules did not apply. However, BOS was required to be open and cooperative with the FSA, and the FSA would reasonably have expected to have been notified of BOS’s suspicions that a fraud may have been committed in May 2007.

If BOS had communicated its suspicions to the FSA in May 2007, as it should have done, the criminal misconduct could have been identified much earlier. The delay also risked prejudice to the criminal investigation conducted by Thames Valley Police. Full disclosure would also have allowed the FSA, at an earlier opportunity, to assess BOS’s response to the issue and its approach to customers and complaints.

Full FCA release

The final notice for Bank of Scotland

The final notices for Lynden Scourfield, Mark Dobson, Alison Mills and David Mills.

 

Alex Brunner, writing in This is Money says that while the FCA has finally provided clarity over the HBOS scandal, a decade on, there is so much that remains unresolved.

'It is exasperating that the slow wheels of UK financial justice mean that cases from a decade ago are now colliding for time and resources with probes into the London Capital & Finance mini-bond scandal and the Hargreaves Lansdown/Woodford farrago.

It is not a good look for regulators and only serves to undermine the confidence of citizens in the integrity of finance.'

This is Money article