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25th June 2019
FCA fines BOS for failing to report suspicions of fraud at HBOS Reading
The Financial Conduct Authority (FCA) has fined Bank of Scotland (BOS) £45.5m for failures to disclose information about its suspicions that fraud may have occurred at the Reading-based Impaired Assets (IAR) team of Halifax Bank of Scotland.
The FCA found that BOS failed to be open and cooperative and failed to disclose information appropriately to the then regulator, the Financial Services Authority (FSA). Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said: “Bank of Scotland failed to alert the regulator and the police about suspicions of fraud at its Reading branch when those suspicions first became apparent.
“BOS’s failures caused delays to the investigations by both the FCA and Thames Valley Police. There is no evidence anyone properly addressed their mind to this matter or its consequences. The result risked substantial prejudice to the interests of justice, delaying scrutiny of the fraud by regulators, the start of criminal proceedings as well as the payment of compensation to customers.”
BOS identified suspicious conduct in the IAR team in early 2007. The Director of the Impaired Asset Team at the Reading branch, Lynden Scourfield, had been sanctioning limits and additional lending facilities beyond the scope of his authority undetected for at least three years. BOS knew by 3 May, 2007, that the impact of these breaches would result in substantial losses to BOS.
Over the next two years, on numerous occasions, Bank of Scotland failed properly to understand and appreciate the significance of the information that it had identified despite clear warning signs that fraud might have occurred.
It was not until July 2009 that BOS provided the FSA with full disclosure in relation to its suspicions. BOS also did not report its suspicions to any other law enforcement agency. The FSA reported the matter to the National Crime Agency (then the Serious Organised Crime Agency) on 26 June, 2009.
In 2017, following an investigation by Thames Valley Police, six individuals including Lynden Scourfield and another BOS employee, Mark Dobson, were sentenced for their part in the fraud committed through the IAR.
If BOS had communicated its suspicions to the FSA in May 2007, as it should have done, the criminal misconduct could have been identified much earlier. The delay also risked prejudice to the criminal investigation conducted by Thames Valley Police. Full disclosure would also have allowed the FSA, at an earlier opportunity, to assess BOS’s response to the issue and its approach to customers and complaints.
BOS agreed to resolve the matter and qualified for a 30 per cent (stage 1) discount. Were it not for this discount the FCA would have imposed a financial penalty of £65m on BOS. The FCA has also banned four individuals, Lynden Scourfield, Mark Dobson, Alison Mills and David Mills, from working in financial services due to their role in the fraud at HBOS Reading.