MP seeks probe into Lloyds CEO's handling of fraud case

LONDON (Reuters) - A senior lawmaker has demanded an investigation into the way the chief executive of Lloyds Banking Group LLOY.L handled information related to one of Britain's biggest fraud cases.

People walk past a branch of Lloyds Bank on Oxford Street in London, Britain July 28, 2016. REUTERS/Peter Nicholls/File Photo

Kevin Hollinrake, the chairman of the parliamentary group for banking, said on Wednesday he had notified Lloyds CEO Antonio Horta-Osorio that he had written to the Financial Conduct Authority (FCA) about the case involving the Reading unit of HBOS, which Lloyds acquired in 2009.

He said he had asked the regulator “to open an investigation of these events under the Senior Managers and Certification Regime,” a set of powers brought in after the financial crisis to better police the conduct of executives.

Lloyds said this month it had settled with Sally Masterton, a former Lloyds senior risk officer who accused former bosses of concealing fraud at the HBOS Reading unit prior to a cash call needed to keep the combined group afloat in 2009.

The bank apologised to Masterton and paid her compensation. The bank, which said it handed Masterton’s report to regulators and the police in 2014, reopened her case this year over the way it treated her and handled her allegations.

In his letter to the Lloyds boss, Hollinrake alleged that internal bank correspondence showed that Horta-Osorio was aware of the scale of the fraud “as early as 2011”, when he joined.

“Our concerns relate to the allegations of the cover-up of the fraud rather than the fraud itself,” Hollinrake wrote.

Asked about the allegations in Hollinrake’s letter, the bank said it was “determined to get to the bottom of what happened in HBOS Reading” and was co-operating with an inquiry.

The FCA is investigating HBOS but details about the exact nature of the probe are unclear. The watchdog did not immediately respond to a Reuters request for comment.

Six people were jailed in 2017 for a combined 47 years over the fraud at the HBOS Reading, in which struggling firms were asset stripped by managers at the lender in the early 2000s.

British TV presenter Noel Edmonds alleges his entertainment company collapsed as a result of the fraud, and has previously refused a financial settlement offer from the bank.

Lawyers for Edmonds say they are preparing to serve Lloyds with a civil claim worth more than 30 million pounds on Thursday.

Lloyds said in a statement said it was waiting for the lawsuit to be filed and would contest it.

Lloyds has apologised to victims and set up a 100 million pound compensation scheme.

Reporting by Iain Withers; Editing by Edmund Blair