A report to be published later this week is expected to reveal that the UK’s financial regulator cannot fine former executives of HBOS because the bank collapse happened so long ago it is now outside the six year statute of limitations on fines.
The report is also expected to make the explosive allegation that HBOS executives ‘leant on’ auditors KPMG to approve their own analysis of impairment charges, despite the auditors taking a more pessimistic view of the bank’s balance sheet.
The disastrous takeover of HBOS by Lloyds Banking Group (LBG) was one of the key elements in the financial crisis of 2008 and led to the Labour government’s £20.5 billion bailout of Lloyds.
Sky News City Editor, Mark Kleinman, says HBOS ‘pressured auditors’ to sign off lower bad loan provisions in a bid to reduce concerns about its financial health.
The joint report from the Financial Conduct Authority (FCA) and the Prudential Regulation Authority PRA, which has taken three years to produce, will be published seven years after the bailout. It covers events at HBOS between 2004 and 2008 and will be published alongside another report by Andrew Green QC who has been examining why the former Financial Services Authority (FSA) – the predecessor to the current regulator – only decided to take action enforcement action against one HBOS executive.
Head of corporate lending, Peter Cummings, was the only HBOS staff member to face disciplinary action. He was fined £½ million in 2012 and banned from working in financial services.
Three former top bosses – chairman Lord Stevenson, CEO Andy Hornby and Sir James Crosby – were accused of ‘a colossal failure of management’. They were also said to be in denial about the causes of HBOS’s collapse in a 2013 report by the Parliamentary Commission on Banking Standards. All three are expected to face heavy criticism in the new report.
Crosby was stripped of his knighthood in 2013, following the publication of the commission’s report.
The publication of the FCA report is understood to have been delayed to allow for ‘Maxwellisation’ – a process which allows those criticised in a report to respond prior to publication.
Tory MP Andrew Tyrie, chairman of parliament’s Treasury committee, said; “There is now a reasonable prospect that the public will at least have an opportunity for a full explanation of this catastrophic failure.
“They deserve it – £20.5 billion of taxpayers’ money was required to bail HBOS out.”
The role of the Financial Services Authority (FSA) is also expected to come under heavy criticism in the report for its part in the whole affair and its investigation of what happened.
Mr Tyrie commented: “The work of the advisors can give Parliament and the public more confidence that the role of the FSA in the failure of HBOS will be fully disclosed.”