Bank fined £45.5 million for failure to share suspicions of fraud with FCA

The FCA has announced that Bank of Scotland has been fined £45,500,000 (reduced by 30% from what would have been a £65 million fine) for its failures to be open and cooperative with the regulator and thereby breaching Principle 11.  The FCA’s notice asserts that BoS delayed notifying the FSA (as was) when it had identified suspicious conduct within the Impaired Assets team of Halifax Bank of Scotland.

The FCA notes that BoS identified conduct and breaches within the team that would result in substantial losses in the first half of 2007; however it did not fully disclose its information to the FCA until July 2009.  The director of the team had, for the past three years, agreed limits and facilities beyond his authority, and the bank knew in 2007 that this would cause it substantial losses. Over the next 2 years, the information it had should have been properly scrutinised and challenged. The bank had spoken to FSA in 2007, and FSA had asked to be kept informed, but the bank either failed to keep it up to date or, when it did, had not conducted sufficient investigations to be able to provide accurate information. As a result, the bank missed clear warning signs of fraud and failed to consider the impact of failing to notify the then FSA or any other regulator.  Moreover, it had not properly followed up on a number of complaints from customers received before 2007. Once the bank did notify FSA, FSA made a SAR to what was then SOCA (now the NCA) – despite the bank having already been contacted by the police in relation to suspicions of fraud.

Even though commercial lending itself is largely unregulated, the bank would have been expected to notify the regulator of the suspicions of fraud when it became aware of them.  The Final Notice noted that not only does Principle 11 require this, but also SUP 15 requires notification if a firm becomes aware an employee may have committed a significant fraud against it. Furthermore, no notification was made by BoS to any law enforcement agency; the FCA notified SOCA (as was) on 26 June 2009.

This fine follows the sentencing in 2017 of seven individuals involved, for fraud committed through the unit, and was accompanied by bans from the financial servics industry for four individuals.

Lloyds Bank Group, of which the bank is now part, estimates around £115m compensation will be due to customers affected by the criminal behaviour.