The UK’s financial watchdog has linked an investigation into the top brass of the failed lender, HBoS, with one into what the bank knew about a £245m fraud at its Reading branch, which resulted in six convictions.
The chief executive of the Financial Conduct Authority, Andrew Bailey, confirmed for the first time on Tuesday that the watchdog’s two HBoS-related investigations had been linked; one reason he cited for a delay in publishing conclusions from the first probe into any culpability of the senior managers for the bank’s £25.4bn collapse – an investigation that has been running for 18 months.
In a statement to journalists after the FCA’s annual general meeting, Mr Bailey said that evidence collected by police as part of the fraud investigation was now being used to inform the FCA’s probe into the former senior managers.
But the decision to link the probes was described by a former HBoS shareholder at the FCA’s annual general meeting as a “fig leaf” and a “convenient way of excusing the delay” in providing an update on the first investigation.
The FCA first announced that it would launch an investigation into the former bosses of HBoS in January 2016; nearly eight years after Lloyds Banking Group merged with the lender in a government-backed emergency takeover at the height of the financial crisis. The decision followed an excoriating independent review, which criticised the watchdog’s predecessor, the Financial Services Authority, for failing to pursue individuals at the time.
Then the FCA said in April that it would resume an investigation into the Reading branch fraud, which it started in 2010 but had to put it on hold in 2013 pending a criminal investigation by Thames Valley Police. A jury eventually convicted in six individuals, including two HBoS employees, in February.
The scam, which according to the presiding judge “ripped apart small businesses” was orchestrated by Lynden Scourfield, the lead director of HBOS’s impaired-assets division in Reading. It forced HBOS to write off at least £245m in loans. Lloyds has set aside about £100m to compensate customers who were victims of the fraud, but small businesses have complained that it is an inadequate amount.
Mr Bailey clarified to journalists after the AGM that the two FCA probes into HBoS will have “separate outcomes”.
“There are two cases and they remain separate,” he said. “But the evidence from Reading obviously informs the ongoing cases in respect of the individuals.”
There remains impatience over the amount of time the investigations have taken.
“Has this now been kicked into the long grass?” asked Philip Meadowcroft, a former HBoS shareholder, asked of the first probe during the AGM. He accused the regulator of delaying, and potentially denying, justice.
Mr Bailey denied this. “I don’t regard Reading as a fig leaf. We’ve known about it as a very long time. Reading had to be carved out of that process due to the criminal trial going on. We had to bring it together with whatever comes out of the Reading investigation. We hadn’t seen the police evidence as it was part of the criminal case. The investigation will be completed as soon as possible. I can’t put a date on it. “