Britain’s financial regulator has demanded an explanation from Lloyds Banking Group (LBG) for the findings of a report into the £245 million HBOS Reading fraud case.
Former High Court judge Sir Ross Cranston has produced an independent report into the case which says Lloyds was ‘neither fair not reasonable’ in its approach to compensating victims of the fraud.
The report found ‘serious shortcomings’ in the way the bank had calculated the losses suffered by its customers and recommended an independent panel should be convened to look into what compensation should be paid.
Now the FCA has told Lloyds that it will be monitored to ensure the recommendations of the review are implemented ‘in full as soon as possible’.
In a statement the regulator said: “While finding that some aspects of LBG’s approach were reasonable, Sir Ross has found serious flaws in important aspects of the approach taken by LBG, including failures to adequately assess claims for direct and consequential losses, the exclusion of some customers from the review and inconsistency in the way some customers were treated in respect of claims for distress and inconvenience.
“These failings need to be addressed by LBG quickly. Sir Ross has made a number of recommendations to achieve that and we will ensure LBG implements them in full as soon as possible.”
“We will also require Lloyds senior management to explain how and why the failings identified by Sir Ross occurred in the first place and consider what further action may be required in light of those answers.”
Six people have already been convicted and sentenced to up to 12 years in prison for their part in the fraud which saw loans worth £245 million being approved which could never have been repaid between 2002 and 2007.
The fraudsters had targeted small businesses in a special turnaround program. The events occurred before Lloyds bought the bank in 2009.
It has since paid out £102 million in compensation to 71 separate businesses, ranging from £100,000 to £5 million.
But Sir Ross’s report claims ‘the bank’s methodology and process …. did not achieve the purpose of delivering fair and reasonable offers of compensation’.
The bank has now apologised and promised to offer all affected customers the option of a re-review of their cases.
Chief executive Antonio Horta-Osorio said: “Our intention… was to deliver fair and reasonable outcomes for customers in a swift way that would be more generous than through the courts.
“Sir Ross has concluded that customers may not have received fair outcomes due to flaws in the review process. I am very sorry that this has happened.
“The group is committed to act on the recommendations made by Sir Ross, and will fully support giving customers the option of a voluntary re-review of direct and consequential losses.
“I want to emphasise my personal commitment to ensuring that those customers affected by the actions of individuals who have since been jailed for their crimes will get their claims properly addressed in an open and transparent manner.”