The decision in March 2010 not to investigate Mr Hornby over his role in the demise of Hbos has been deemed unreasonable by a QC asked to investigate the FSA’s enforcement action in relation to the banking giant.
Today Mr Green published his report alongside the PRA and FCA’s document on the failure of Hbos, which stated the FSA board and executive management failed to ensure that adequate resources were devoted to the supervision of large systemically important firms such as Hbos.
The FCA/PRA report also concluded the FSA placed too much trust in the competence and capabilities of Hbos senior management and control functions.
Mr Green’s report explored the fact the FSA’s enforcement and financial crime division conducted just two investigations arising from the failure of Hbos.
The investigation into the conduct of Peter Cummings in relation to his activities as chief executive officer of the corporate division saw him hit with a £500,000 fine and a partial prohibition.
Disciplinary proceedings were brought against Bank of Scotland, resulting in a public censure but no financial penalty being issued.
Mr Cummings was the only member of the former senior management of Hbos ever investigated by enforcement in relation to the failure of the bank, and the only member of the former senior management against whom disciplinary and/or prohibition proceedings were brought.
Inevitably, the QC stated the ‘public message’ conveyed was that Mr Cummings was the only former senior manager of this failed bank whom the FSA considered it appropriate to make the subject of enforcement action.
It is clear, and was emphasised by a number of interviewees, that the ‘public message’ conveyed by enforcement action was regarded as an important consideration by the FSA when deciding upon the targets of enforcement investigations.
In a report issue today, Mr Green said: “The FSA failed to conduct a reasonable decision-making process in the period between December 2008 and 26 February 2009.
“In particular, the only person whose possible misconduct was given proper consideration for investigation during this period was Mr Cummings (in relation to the corporate division); the FSA gave no proper consideration to the investigation of any other individuals including former members of the board (such as the former group chief executive officer, Andy Hornby, and the former chairman, Lord Stevenson).
“The FSA gave no proper consideration to an investigation of Hbos itself.
“The FSA, in the period after 26 February 2009, failed properly to consider the scope of the existing investigation.
“After 26 February 2009, the losses and impairments in other areas of the failed bank, particularly the international and treasury divisions, were of such magnitude that the FSA should have considered other potential subjects for investigation including, in particular, the former chief executive officers of the international and treasury divisions. It failed to do so.”
emma.hughes@ft.com
