Today’s “highly critical report” suggests regulators are likely to hold senior former HBOS managers to account, says Charles Kuhn, Partner at law firm Hickman & Rose.
It brings them a step closer to prohibition proceedings against the top tier of HBOS management for the bank’s liquidity failure.
Up till now we have witnessed a prolonged exercise in targeting lower-level personnel in an attempt to appease an angry post-crisis public and gain some much-needed credibility. There have recently been rumblings from Whitehall that the ‘reverse burden of proof’ may be reinstated into the soon-to-be in force Senior Managers’ Regime.
But Kuhn argues against this...
Despite this positive outcome we will continue to question the merits of trying to solve the problems of a deeply complex and flawed system by making it easier to prosecute former banking management.”
A spokeswoman from Skipton Building Society, where former HBOS finance director Mike Ellis is now chairman, said:
Skipton appointed Mike Ellis as Chairman in May 2011 due to his significant and valuable experience of building societies, banks and regulation, and the personal qualities that have enabled him to lead the Board and work closely with the Executive team.
Since his appointment Mike has provided outstanding leadership to the Board and overseen a significant improvement in the Society’s performance during the intervening four years. He has the wholehearted confidence of the Board for the contribution he has made and continues to make to the Society.
Skipton Building Society says chairman Mike Ellis (ex-HBOS) has "wholehearted confidence of the board"
BoE deputy governor Andrew Bailey has promised ‘rapid action’, seven years after HBOS failed.
Bailey also announced he has sent the report into the failure of HBOS to the secretary of state for business, who has powers to ban directors under Britain’s Companies Act.
He told reporters:
“The directors’ regime is entirely within their body of operation, not ours.”
Senior MP Andrew Tyrie, and the Institute of Directors, have both demanded an urgent response.
The former non-executives directors of HBOS for whom Ashurst acts disagree with a number of the conclusions of this report, particularly the way in which it downplays the unforeseen and unforeseeable effect of the financial crisis on HBOS. Indeed the report acknowledges that its judgements have been reached with the benefit of hindsight. The report does not contain evidence that would justify any further enforcement action against executives.
Equally, they understand the justified anger about what happened. The former Chairman and CEO resigned, apologised, waived contractual entitlements and lost their investments in HBOS. Their only wish now is that current and future bank boards learn to avoid the mistakes that they and others undoubtedly made.
Those eight directors are:
Sir Ron Garrick (former deputy chairman)
Anthony Hobson (former chair of the audit committee)
Lord Stevenson (former chairman)
Sir Charles Dunstone, Coline McConville, John Mack, Kate Nealon & Sir Brian Ivory (all former non-executive directors).
They feature in our comprehensive list of former key players:
The Department for Business, Innovation and Skills says it has already decided not to ban HBOS executives, two years ago.
But it might take a second look at the situation, if today’s reports have thrown up new evidence.
Here’s their statement:
“In 2013 the Insolvency Service looked at whether the disqualification of the directors of HBOS was in the public interest and concluded there was not sufficient evidence to commence proceedings at that time.
“Once the FCA and PRA have conducted their review into enforcement action, we will establish whether there is any new information to consider.”
Business dept (BIS) says insolvency service looked at former HBOS directors in 2013 and concluded "not sufficient evidence" for proceedings
Gala Coral, where Andy Hornby now works as chief operating officer, has issued a brief statement.
It defends Hornby, while also avoiding commenting on the HBOS collapse:
Andy Hornby has been a key member of Gala Coral Group’s management team for nearly five years, most recently as COO. During this time he has played a central role in the transformation of the business and has earned the continuing support of our colleagues, management and shareholders.
Gala Coral Group is not in a position to comment on events relating to another organisation and sector some eight years ago.”
Gala Coral says Andy Hornby key member of management team for nearly five years and has no comment on events at HBOS eight years ago
George Osborne: Labour's system of regulation failed
The Chancellor of the Exchequer, George Osborne, hasn’t wasted any time blaming the former Labour government for contributing to HBOS’s failure
“This report, from one of our most respected regulators, clearly shows that the collapse of HBOS was caused by those running the bank and those regulating it. It demonstrates that the system of regulation created by the last Labour government failed. In the end, this led to a £20 billion bailout of Lloyds Banking Group, funded by the taxpayer.
Osborne also claims that he has fixed some of the problems:
“I don’t want the British taxpayer to be on the hook for any more bailouts. So since 2010 we have made big changes. We have dismantled the failed tri-partite system, and put the Bank of England back at the heart of financial supervision.
“We have ensured that banks hold more capital and liquid assets, and that depositors are protected by a regulatory ring fence. And we have made bankers accountable for their actions, with those that bring down banks now facing up to seven years in prison. I welcome the fact that the report notes that this Government’s steps have addressed many of the failings that led to the collapse of HBOS. Next spring we will complete the sale of Lloyds Banking Group, putting the bank back into the private sector - its rightful place.”
The Institute of Directors has urged regulators to pull their fingers out, and decide whether to open new investigations into former HBOS bosses.
Oliver Parry, senior corporate governance Adviser at the IoD, says:
“There is justifiable anger that, so far, only one HBOS executive has been reprimanded for his involvement in its failure. The regulators have plans for further investigations and it is in everyone’s interest for these to be completed much quicker than the seven years we have waited for this one.
Q: Was the FSA under pressure from the Labour government to not ask for more tools, or to take more action against banks before the crisis?
Bailey says there was a “broad culture” of many years of economic growth, generally rising asset prices, bigger bank balances sheets.
And crucially:
There was a belief that this was a very good thing...don’t kill the goose that laid the golden egg.
That ‘broad consensus’ contributed to the banking crisis. And Bailey’s priority is to create a new regulatory environment when this can’t happen again.
Isn’t it staggering that it took so long to allow those criticised in the report to respond, asks our financial editor Nils Pratley. Is Maxwellisation* working as it should do?
Q: What action could be taken against the people who were running the FSA when HBOS failed?
Bailey says those people were not in “approved roles” at the time - and they’ve now all left the regulator.
But anyone who now works for the Prudential Regulatory Authority or the Financial Conduct Authority are subject to “continuous” tests to assess their fitness.
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