July 25, 2016 / 11:08 PM / 3 years ago

MPs call for regulatory rejig after HBOS collapse

LONDON (Reuters) - Failings in the way regulators handled the collapse of HBOS bank bolster the case for an independent financial services enforcement body, a panel of British lawmakers said on Tuesday.

The Houses of Parliament are seen at dusk in London, Britain, December 2, 2015. REUTERS/Peter Nicholls

The Treasury Select Committee was formally responding to the publication last November, seven years after the bank’s failure during the credit crunch, of two reviews, one by regulators, the other by independent counsel.

The counsel’s report said the Financial Conduct Authority (FCA) and Bank of England should review a decision by regulators not to act against some 10 executives of HBOS, despite the failure of the lender, which traded under the brands Bank of Scotland and Halifax.

Andrew Tyrie, who chairs the parliamentary committee, said the case for placing the FCA’s enforcement function in a separate body had been strengthened by the counsel’s report.

A separate parliamentary committee on banking reform that Tyrie chaired had proposed such a move in 2013, but the idea was rejected by the Treasury, or finance ministry.

“A separate body would bolster the perception of the enforcement function’s independence, and provide the regulators with greater clarity over their objectives,” Tyrie said.

“The case for separation merits serious re-examination,” Tyrie added. “The Treasury should appoint an independent person to undertake a review.”

HBOS had to be rescued in a government-engineered takeover by rival Lloyds (LLOY.L), which subsequently needed a 20 billion pound bailout of its own.

Britain’s finance ministry said on Tuesday that reforms of financial supervision since the HBOS crash had directly addressed the regulatory failings identified in the lawmakers’ report.

NOT ALERT ENOUGH

In 2014 the finance ministry said co-operation between the supervision and enforcement functions would likely be imperilled by institutional separation.

The FCA said on Tuesday that hiving off enforcement from supervision would impact its ability to protect consumers and ensure the integrity of the UK financial system. It said HBOS had failed because of bad management and investigations into certain former HBOS senior managers were continuing.

Tyrie also said parliament was not alert enough before the crash, its scrutiny of regulators having failed to flag up weaknesses in supervision.

The committee said it expects regulators to demonstrate a high degree of independence in its work and has asked them to confirm that conflicts of interest from having serving or former bankers on their boards are adequately managed.

Tyrie reiterated his criticism that the Financial Reporting Council (FRC) had made a “serious mistake” in not investigating the auditing of HBOS before last November’s two reports.

“The process by which it reached its decision suggests a lack of curiosity and diligence on the part of the FRC. The committee will be keeping a close eye on the FRC’s work,” he added.

Editing by David Holmes

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