Failing to report early suspicions of fraudulent activity to the finance regulator has left Bank of Scotland with a £45.5 million fine.
It took Bank of Scotland two years to notify the regulator and the police, having begun its own internal investigation in 2007 into the ‘impaired assets’ team its Reading branch of Halifax Bank of Scotland.
This week, the Financial Conduct Authority concluded its action against Bank of Scotland, which found BOS “failed to be open and cooperative and failed to disclose information appropriately to the then regulator, the Financial Services Authority (FSA)”.
The £45.5m fine issued is after the FCA provided a 30% discount in recognition that BOS agreed to resolve the matter.
Were it not for this discount the FCA would have imposed a financial penalty of £65 million.
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.”
The FCA statement outlines how 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, and BOS knew by May 2007 that the impact of these breaches would result in substantial losses to the bank.
Over the next two years, on numerous occasions, BOS failed properly to understand and appreciate the significance of the information that it had identified despite clear warning signs that fraud might have occurred, said the FCA.
“There was insufficient challenge, scrutiny or inquiry across the organisation and from top to bottom. At no stage was all the information that had been identified properly considered.
“There is also no evidence anyone realised, or even thought about, the consequences of not informing the authorities, including how that might delay proper scrutiny of the misconduct and prejudice the interests of justice,” said the FCA’s statement.
In 2017, following an investigation by Thames Valley Police, six individuals including Lynden Scourfield and another BOS employee, Mark Dobson, were jailed for their part in the fraud.
The FCA notes that commercial lending was and still is largely unregulated in the UK which meant that the activities of IAR were not subject to specific rules imposed by the FSA. For example, conduct of business rules and complaints handling rules did not apply.
However, it said BOS was required to be open and cooperative with the FSA, and the FSA would reasonably have expected to have been notified of BOS’s suspicions that a fraud may have been committed in May 2007.
The FCA has also today banned four individuals from working in financial services due to their role in the fraud at HBOS Reading: Lynden Scourfield, Mark Dobson, Alison Mills and David Mills.