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FSA finds Bank of Scotland guilty of serious misconduct

The Financial Services Authority has found Bank of Scotland guilty of serious misconduct, following its enforcement investigation into HBOS.

The investigation into the firm has now concluded and the FSA has published details of its findings into Bank of Scotland and its corporate division between January 2006 and December 2008.

The FSA judged that the firm was guilty of very serious misconduct, which contributed to the circumstances that led to the UK government having to inject taxpayer funding into HBOS.

The FSA considers that during this period, Bank of Scotland failed to comply with Principle 3 of the FSA’s Principles for Businesses, which state: “A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.”

The regulator says the severity of Bank of Scotland’s failings during this time would, under normal circumstances, be likely to warrant a very substantial financial penalty.

However, because public funds have already been called on to address the consequences of Bank of Scotland’s misconduct, levying a penalty on the enlarged group means the taxpayer would effectively pay twice for the same actions committed by the firm.

Therefore, to reflect these exceptional circumstances, the FSA has not levied a fine against Bank of Scotland but has issued a public censure to ensure details of the firm’s misconduct can be viewed by all and act as a lesson in risk management failings.

The FSA has found that between January 2006 and March 2008, Bank of Scotland’s corporate division pursued an aggressive growth strategy that focused on high-risk, sub-investment grade lending.

Over the period, the division’s transactions increased in size, complexity and risk.  Its portfolio was high risk with highly concentrated exposures to property and to significant large borrowers.

The FSA says rather than re-evaluating its business as conditions worsened, the division set out to increase its market share as other lenders started to pull out of the market.

In addition, its internal culture was focused on revenue rather than assessing the level of risk in transactions.

Tracey McDermott, acting director of enforcement at the FSA, says:  “Banks and other firms have to manage their business by ensuring that their systems and controls are appropriate for the risks that they are running.

“The conduct of the Bank of Scotland illustrates how a failure to meet regulatory requirements can end not just in massive costs to a firm, but losses to shareholders, taxpayers and the economy.”

This announcement marks the conclusion of the enforcement action against the firm, but other enforcement proceedings in connection to the failure of HBOS are ongoing and remain subject to the legal processes prescribed by the Financial Services and Markets Act 2000.


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  • Phil Shelford 13th March 2012 at 4:18 pm

    will people please understand that RBS & BOS are NOT the same company, although no doubt they both could have done things better

  • d 13th March 2012 at 9:48 am

    Let me get this right. The practices went on for 3 years and the world knew what the banks were doing – they did not actually hide their high risk strategies. However the FSA failed at that point to notice anything but several years later with hind sight decide this was not right. I would love to see the FSA issue any papers they have concerning any looking at policies within RBS during that 3 year period – do they back what they are doing?.
    Be ashamed FSA and hand back the big bonuses you took for your part in what happened. Come on Mr Cameron an investigation into the FSA and maybe even other senior ministers at that time seems most appropriate.

  • Seething 9th March 2012 at 7:08 pm

    Truly predictable of the FSA. Have the decency to practice what you preach. Governance Controls Culture? The resultant action is straight from a Black Adder Script. Dont fine the Bank, fine or Jail those responsible!

  • Seething 9th March 2012 at 7:07 pm

    Truly predictable of the FSA. Have the decency to practice what you preach. Governance Controls Culture? The resultant action is straight from a Black Adder Script. Dont fine the Bank, fine or Jail those responsible!

  • Bobby 9th March 2012 at 3:36 pm

    Brokers – one rule
    Bankers – another rule

    Same as always. Its easy to wipe out an individual broker and his livelihood than take on a Bank. FSA SCUM, always never fail to disapoint. I really do HATE THEM.

  • QuoMan 9th March 2012 at 3:13 pm

    Grey haired broker | 9 Mar 2012 2:04 pm

    Fred was RBS, not BoS.

    Shaks | 9 Mar 2012 2:14 pm

    Interesting point, but can you imagine the chaos and resultant consumer detriment?

  • Innocent Bystander 9th March 2012 at 3:13 pm

    @Grey Haired Underwriter – It does say there are other ongoing enforcement proceedings in connection with the failure but that the proceedings against the bank are finished. Presumably that only leaves the Directors and Senior Managers?

  • Warwick Tidy 9th March 2012 at 3:08 pm

    Double standards FSA, hold your heads in shame or are your necks so stiff from doing it so often these days ?

  • Jon T 9th March 2012 at 3:01 pm

    “levying a penalty on the enlarged group means the taxpayer would effectively pay twice for the same actions committed by the firm”

    Why punish the taxpayers? How about something resembling a real investigation into the individuals responsible at BoS for the risky lending practices, and personal fines or even prosecutions agains these same individuals?

    That’s right. I’m talking about accountability. Not one senior banker’s head has rolled over this unless you could count Mr Goodwin being de-knighted. Guess the FSA doesn’t do accountability with the big boys, huh?

  • Confused 9th March 2012 at 2:56 pm

    Really?, so no action taken against any individuals? Because remember, it was the actions of a few individuals (who continue to receive fat bonuses) that caused the problems. Thank you FSA for a job well done.

  • Shaks 9th March 2012 at 2:14 pm

    Serious Misconduct!!
    So does that mean the FSA will withdraw their permissions and strike them off the register like they would with a broker or IFA?? If its Serious, it must be bad so close the bank down.

  • Grey haired broker 9th March 2012 at 2:04 pm

    Not willing to fine the Bank due to Taxpayer ownership so why not fine and ban the previous Directors and Fred then?