The City watchdog has fined Bank of Scotland £45.5 million for failing to report suspicions of fraud at the Reading branch of HBOS and for omitting to inform the regulator of allegations raised by two police forces.
The Financial Conduct Authority imposed the penalty after concluding that Bank of Scotland, now owned by Lloyds Banking Group, had not been “open and co-operative” with the Financial Services Authority, the regulator at the time, and had failed to disclose information appropriately.
It is the biggest fine that the authority has levied for this type of breach and marks the latest twist over a fraud that took place between 2003 and 2007. The scandal involved companies being damaged or destroyed when consultants linked with a Halifax Bank of Scotland “turnaround” unit asset-stripped their businesses and stole from the bank. The proceeds of the fraud financed luxury holidays and prostitutes.
The lender lost £245 million as a result and Lloyds, which rescued HBOS in 2009 during the financial crisis, expects to pay as much as £115 million in victim compensation.
The regulator said yesterday that it had banned Lynden Scourfield and Mark Dobson, two former HBOS employees, and David Mills and his wife Alison from financial services over the scandal. Two years ago those individuals and two others were sent to prison for a combined 47 years over the fraud.
A report published by the FCA yesterday showed that Bank of Scotland had uncovered suspicious conduct in 2007 and knew by May that year that breaches would cause substantial losses. The regulator said that on “numerous occasions” the lender had “failed properly to understand and appreciate the significance of the information it had identified, despite clear warning signs that fraud might have occurred”.
The FCA disclosed that in 2008 the bank had been contacted by two police forces about fraud allegations but had not told the regulator.
The fine has been reduced from £65 million because Bank of Scotland agreed to resolve the matter. Lloyds said that it had accepted the regulator’s findings. António Horta-Osório, chief excecutive, apologised to the customers affected for the distress caused.
Nikki Turner, of SME Alliance, a small business group, said: “We demand the £45 million fine is put into a fund to help those who have suffered.”