Senior managers blamed for the HBoS collapse will face limited penalties, and any further action against them could take at least another two years and be limited to industry bans.
The joint 407-page report from the FCA and PRA, The Failure of HBoS, concluded that the board and senior executive management of HBoS failed to set an appropriate strategy, and also failed to challenge a flawed business model.”
It said HBoS group put itself under pressure and as margins declined on all forms of lending, a search for yield pushed it towards more risky propositions.
Alongside this, a 114-page report by Andrew Green QC, Report into the FSA’s Enforcement Actions Following the failure of HBoS, concluded that another investigation into HBoS was in the public interest as the original probe had sanctioned only one person – former HBoS executive Peter Cummings.
The FCA/PRA report found that each of the lending divisions experienced an increase in its risk profile to grow income levels, with the report stating a “key feature” of the balance sheet was its concentration in property, particularly the commercial variety.
The report concluded that the board and senior executive management failed to set an appropriate strategy and also failed to challenge a flawed business model that placed inappropriate reliance on continuous growth, without due regard to the risks involved.
The report also found the FSA applied a “light touch” approach that was too trusting of firms’ management. Oversight by the FSA board, led by chairman Sir Callum McCarthy, was insufficient.
The report found that both James Crosby and Andy Hornby, as former chief executives, helped reinforce a culture within the firm that leaned heavily towards growth and performance.
In a statement, the Treasury select committee also hit out at the regulators. It said: “The FSA was asleep at the wheel, and even the start of the crisis failed to wake them. The FSA did not appreciate the full extent of the risks facing HBoS. A small number of relatively junior staff were left to do the job at the time, a shocking reflection of the FSA’s lack of awareness.”
Professor Andre Spicer from London-based Cass Business School, said: “The report shows HBoS was a textbook case of corporate stupefaction. The bank employed senior people who had little experience in the industry, people were dissuaded from asking tough questions, and the regulator also avoided examining them with too much depth.”
Adviser View
Andrew Day, principal director of Manchester-based Depledge Strategic Wealth Management, said: “It’s a sorry tale. Having spent so long investigating and coming up with a 407-page report, recommending another finding seems like another load of time and cost. This should have come out in the review. We’re talking about malpractice and the responsibility for that, and the results should be a bit more definite than what the regulators have come out with.”
