Release Date: 21st June 2019
To access the original FCA document, click here.
Summary
The Financial Conduct Authority (FCA) has fined Bank of Scotland (BOS) £45,500,000 for failing to report suspicions of fraud at its Reading-based Impaired Assets (IAR) team of Halifax Bank of Scotland. BOS failed to be open and cooperative with the regulator and delayed informing the Financial Services Authority (FSA) about the fraud suspicions, which hampered investigations by both the FCA and Thames Valley Police.
Mark Steward, FCA Executive Director of Enforcement and Market Oversight, criticised BOS for not promptly alerting the regulator and the police about the fraud suspicions, which delayed scrutiny and the commencement of criminal proceedings. The FCA found that BOS failed to properly address or understand the significance of the information it had identified, despite clear warning signs of fraud.
The suspicious conduct was identified in early 2007, involving the Director of the Impaired Asset Team at the Reading branch, Lynden Scourfield, who had been authorising lending beyond his authority, leading to substantial losses. Despite numerous occasions over two years where BOS could have acted, it failed to do so, resulting in significant delays in the investigation and justice process.
BOS did not provide the FSA with full disclosure until July 2009, failing to report its suspicions to other law enforcement agencies. The FSA eventually reported the matter to the National Crime Agency in June 2009. Following an investigation, in 2017, six individuals, including Lynden Scourfield and another BOS employee, Mark Dobson, were sentenced for their roles in the fraud.
The FCA’s investigation highlighted that commercial lending was largely unregulated in the UK, meaning the activities of IAR were not subject to specific FSA rules. However, BOS was required to be open and cooperative with the FSA, which would have expected to be notified of BOS’s suspicions of fraud in May 2007.
BOS agreed to resolve the matter and qualified for a 30% discount, reducing the financial penalty from £65,000,000 to £45,500,000. The FCA has also banned four individuals from working in financial services due to their roles in the fraud at HBOS Reading.
Key Takeaways for Other Firms:
- Timely Disclosure: Promptly report any suspicions of fraud or misconduct to relevant authorities.
- Cooperation with Regulators: Maintain open and cooperative communication with regulatory bodies.
- Proper Oversight: Ensure robust internal processes for identifying and addressing potential fraud.
- Understanding Consequences: Recognise the significance and consequences of failing to report suspicious activities.
- Accountability: Firms are accountable for the actions of their employees and must take proactive steps to prevent misconduct.
In conclusion, the substantial fine imposed on BOS underscores the importance of timely and transparent reporting of fraud suspicions. Financial institutions must ensure robust oversight and cooperation with regulatory authorities to maintain market integrity and protect customers.
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