Lloyds Banking Group welcomes FCA’s investigation and findings of past disclosure failures with HBOS

21 June 2019

Lloyds Banking Group today welcomes the comprehensive investigation by the Financial Conduct Authority (FCA) into Bank of Scotland’s (BOS) disclosures in the period between 3 May 2007 and 16 January 2009 regarding the Impaired Assets Office for London and the South East, based in Reading (IAR). The Group accepts the findings, has agreed to pay a fine of £45.5M and apologises once again to customers affected by the fraud itself.   

The FCA’s investigation relates to the period prior to the acquisition of BOS by the Group. While BOS referred to the FCA its suspicions that a fraud may have taken place during the period in question, the FCA has determined that BOS ‘failed to be open and cooperative…and failed to disclose information appropriately’ about those suspicions. 

The FCA has judged these failures were ‘not intentional’, but the authority found the breach involved repeat instances where Bank of Scotland ‘failed to properly understand and appreciate the significance of the information it had identified’. The FCA acknowledges that the ‘weight of evidence that ultimately resulted in the convictions would not (and could not) have been available to BOS at the time’, although the suspicions accompanying BOS’s conclusion that it did not have concrete evidence of fraud could have been more clearly communicated.

The Group has co-operated fully throughout the enforcement investigation, which was initially launched in 2010 before being stayed between 2013 and 2017 to avoid prejudicing the criminal investigation by Thames Valley Police. Since the acquisition of HBOS, the Group has ensured tighter controls, more robust risk management and an entirely different culture than was evident during the fraud.

Some of the changes include:

  • Culture - An open and rigorous approach to identifying and addressing legacy issues supported by a culture that is focused on our obligation to do the right thing for our customers and be thoroughly open and transparent with our regulators

  • Strengthening controls and risk management - Clear demarcation of accountabilities across; Risk Management in the business areas, oversight by the Risk Function and assurance from Internal Audit

  • Enhanced conduct framework – An enhanced conduct strategy formally put the delivery of better outcomes for customers at its heart, with this reflected in governance of product design and customer service

  • Governance driven by measurement– The Group now requires all divisions to use conduct risk appetite metrics as part of their governance, monitoring conduct performance and identifying areas requiring specific attention

António Horta-Osório, Chief Executive of Lloyds Banking Group, said: “We take today’s enforcement notice very seriously. 2007-2009 was a dark period in HBOS’s history, prior to its acquisition by Lloyds Banking Group.  I want to apologise once again for the very deep distress caused to the customers affected by the HBOS Reading fraud. he perpetrators of the fraud rightly went to jail for the crimes they committed. 

"The Group’s management team has been committed to putting things right. In 2017, once clear of our obligations not to prejudice the criminal trial, we launched the Customer Review led by Professor Griggs to provide fair compensation for victims. We have now made offers to all customers in the review and 98% of those offers have been accepted.”

Lord Blackwell, Lloyds Banking Group’s Chairman, said: “The Lloyds Board has been determined to get to the bottom of what went on in HBOS Reading during this period.  The FCA’s investigation into disclosure failures at Bank of Scotland provides a comprehensive analysis of what BOS knew and how it engaged with its regulator between 2007 and 2009. The Group takes on board the findings and accepts that BOS did not disclose information appropriately.

"While the FCA found this was not intentional, the breach identified was a failure and lessons have been learnt. Since the acquisition of HBOS in January 2009, the Group has focused on improving controls and rebuilding trust by shifting the culture to one driven by doing the right thing for customers.”