MPs call for new regulator in wake of Hbos report

MPs call for new regulator in wake of Hbos report

A committee of MPs has called for a new regulator with a focus on enforcement to be set up as the fall-out of the Hbos collapse continues to reverberate eight years after it happened.

The Treasury Select Committee has today published its review into the report into the failure of the bank in 2008.

Its report has recommended the creation of a new regulator to handle those companies which break the rules, saying the current structure is “outdated”.

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The committee said it was “far from satisfactory” that even though prudential supervision has been hived off to the Prudential Regulation Authority, the bulk of enforcement staff and expertise still lies within the Financial Conduct Authority.

Moving enforcement away from supervision would mean the new regulator could focus independently on interrogating evidence and assessing whether a breach has been committed, MPs said.

Committee chairman Andrew Tyrie said the case for a new enforcement regulator - first proposed by the Parliamentary Commission on Banking Standards in 2013 but rejected by HM Treasury - has now been strengthened.

He said: “The regulators failed, both before and after the Hbos crisis. Seven years after the bank’s collapse, we now know just how badly.

“The plain fact is that the FSA did not succeed in protecting consumers from spectacular regulatory failures.

“The creation of the FCA and the PRA has been an opportunity to build something much better. This is still work in progress, particularly at the FCA.

“A separate body would bolster the perception of the enforcement function’s independence, and provide the regulators with greater clarity over their objectives. The case for separation merits serious re-examination.”

He urged the Treasury to appoint an independent person to carry out a review into this.

Published in November, the report into the failure of Hbos found the FSA did not appreciate the full extent of the risks the bank was running and did not take sufficient steps to intervene until it was too late.

It also found the FSA board and executive management failed to ensure adequate resources were devoted to the supervision of large systemically important firms such as Hbos.

The committee’s report also criticised the Financial Reporting Council for deciding not to investigate the auditing of Hbos in 2013, saying this was a “serious mistake”.

Mr Tyrie said: “The process by which it reached its decision suggests a lack of curiosity and diligence on the part of the FRC.

“Having seen the final PRA/FCA report, the FRC’s belated decision to launch an investigation into the auditing of Hbos is welcome. Better late than never.”

Concerns about Hbos’s ability to survive, prompted by the credit crunch of 2007, began to surface in early 2008.

These concerns proved accurate in October of that year when Hbos was bailed out by the government and taken over by Lloyds in January 2009.