View more on these topics

FSA bans and fines ex-HBOS director £500k

The FSA has fined former HBOS executive director Peter Cummings £500,000 and banned him from holding any senior position in a UK bank, building society, investment or insurance firm. 

This is the highest fine imposed by the FSA on a senior executive for management failings and relates to the period between January 2006 and December 2008 when Cummings was an executive director of HBOS and chief executive of its corporate division.

The FSA found that Cummings was aware that there were significant issues with the corporate division’s controls, including: weaknesses in management information; staff being incentivised to focus on revenue rather than risk; and a culture which saw risk management as a constraint on the business rather than an integral part of it. 

Under Cummings’ direction, the division pursued an aggressive growth strategy, despite these known weaknesses in the control framework. 

This focus on growth peaked in 2007 and continued into 2008, despite Cummings being aware of concerns within HBOS about some of the markets in which the division operated and growing signs of problems in the economy. 

Rather than taking reasonable steps to mitigate potential risks, the FSA says he directed his division to increase its market share as other lenders were pulling out of deals.

Cummings led a culture of optimism which also affected the division’s judgement about bad debts. 

The division did not adequately monitor the deterioration of high value transactions and was slow to pass them to the dedicated ‘High Risk and Impaired Assets’ team for more detailed assessment of the likelihood of default and the corresponding level of provision that should be raised.

The assessment of individual provisions was consistently optimistic rather than prudent and Cummings chose not follow the approach to levels of provisioning which had been suggested by HBOS’s auditors and the division’s own Risk function.

In reaching its decision, the FSA accepts that some of the problems existed before Cummings was appointed, that he did make efforts to introduce some improvements and that critical business decisions were made collectively.

It also accepts that Cummings did not act deliberately or recklessly in breaching FSA regulations, and that the full severity of the global financial crisis, and its effects, were not reasonably foreseeable during the early part of the time period reviewed. 

However, the FSA has judged Cummings to be personally culpable in breaching Statement of Principle 6 of the FSA’s Code of Practice for Approved Persons, by failing to exercise due skill, care and diligence in managing HBOS’s Corporate Division during this critical period.

The FSA also judged Cummings to be knowingly concerned in the misconduct which was the subject of the separate Final Notice issued to Bank of Scotland on 9 March 2012.

The regulator’s director of enforcement and financial crime Tracey McDermott says: “Despite being aware of the weaknesses in his division and growing problems in the economy, Cummings presided over a culture of aggressive growth without the controls in place to manage the risks associated with that strategy. 

“Instead of reacting to the worsening environment, he raised his targets as other banks pulled out of the same markets.

“It is essential that senior executives understand that incentivising revenue over risk is a dangerous folly. Growth is a sound ambition for any business but risk must be properly managed and robust controls are imperative to ensure growth is achieved in a way that is both stable and sustainable.”


AFI two-year fix set at 2.79%

Abbey for Intermediaries has launched a new two-year fix at 2.79 per cent and cut its buy-to-let rates by up to 1.04 per cent and its residential mortgage rates by up to 0.75 per cent. The two-year fix is a key account exclusive and is available for a £995 fee up to 60 per cent […]

Signs of life for housing market?

It has been a challenging year so far for lenders and housebuyers alike. The economy continues to stagnate and we as consumers do not have an abundance of money with which to buy our dream home. A recovery of any kind, whether economic or in housing terms, is still arguably some way off. However, the […]

Loans to homemovers up 8% in July says CML

The number of loans taken out by home movers rose by 8 per cent compared to June and by 4 per cent on July last year, the latest figures out from the Council of Mortgage Lenders reveals today.


News and expert analysis straight to your inbox

Sign up
  • Post a comment
  • Des Platt 14th September 2012 at 4:29 pm

    No doctor SP; I never did ram dubious self cert cases through the doors. I always saw myself as the first line underwriter for the lender. It wouldn’t do my client any good for me to put through a case where I didn’t think they would be able to pay it back

  • seagull 14th September 2012 at 11:09 am

    re Doctor SP comments, I understand what you say, all of us had our part to play in causing the recession but some more than others.
    Whether starting out as a tea boy or being given high command thru old school system, one still has a duty to act responsibly, in fact those that started at the bottom should know better especially as they are less likely to be given the “nod and wink” we’ll turn a blind eye to it this time benefit from pals at regulators and this is probably why this guy has suffered while others walked away scot free.
    How can simple brokers be expected to have behaved responsibly when all those in highest positions were behaving the way they were, whenever you questioned a lender regarding the legitimacy of self cert they looked at you like you were some sort of idiot, giving a thought to seviceability was always guaranteed to get a belly laugh.
    I have to say, not sure if it is connected but, I worked for a High Street Bank in their Corporate division during the time period mentioned & HBOS were taking a lot of borrowing from us at that time and it was mainly business that we were happy to lose, they were much too aggresive and too willing to say yes

  • wes 14th September 2012 at 8:49 am

    Sandy – They have ruined many small businesses and brung hardship to millions of people

    Brung?? You just couldn’t make it up could you.

  • Doctor SP 13th September 2012 at 12:20 pm

    I’m glad, that as usual, everyone has a thoroughly informed, balanced view of things.

    Because of course, he was a “fat cat banker”, not a guy who worked for the company for 36 years, starting as tea boy in a branch and working his way up through hard work and graft.

    Yes, he was partly culpable, but then so was everybody. It’s easy to blame banks, rather than take a long hard look at the part you played in the credit crunch yourselves.

    But then I’m sure none of you cared when you were ramming dubious self cert cases through the doors, whilst smoking havana cigars and filling up your Bentleys with swan’s tears?

    Nope, didn’t think so.

  • Sandy Gibson 13th September 2012 at 9:50 am

    What about Freddy and the rest of the bunch

    They should not be fined but Jailed for a long long time

    They have ruined many small businesses and brung hardship to millions of people


  • ajk 12th September 2012 at 5:31 pm

    Yawwwwwn! so FSA fine a fat banker Big deal he ll be back no doubt!

  • Stephen Mokhof 12th September 2012 at 5:30 pm

    Fine is a joke it’s peanuts for these type of people and he will find a way in, to have a senior position elsewhere you never know they might even make Governor of Bank of England LOL