The FSA says that it highlighted its worries about the business model of HBOS way back in 2002 – well before its well-publicised whistleblower row, which brought the FSA career of Sir James Crosby to an abrupt end yesterday. As Gordon Brown defended his appointment of Crosby to senior MPs this morning, the day after his old chum was seemingly hung out to dry by the Government, the FSA is clearly keen to defend its actions with regard to HBOS and get its retaliation in early. But we’re not entirely sure how reassuring this is supposed to be…
In a statement published last night, the FSA said it had ‘identified a need to strengthen the control infrastructure’ at HBOS back in 2002 – two whole years before Paul Moore, the former head of regulatory risk at HBOS, came forward with his concerns (though emphasising that he may have had an excellent point). The regulator says it then appointed KPMG to investigate Moore’s complaints, particularly with regard to the suitability of its new group risk director – but found no cause for concern (or, for that matter, that there was any substance to Moore’s claims that he was sacked for being too bearish).
Then again, it also conducted another risk assessment around the same time, and concluded that although good progress had been made, ‘the risk functions still needed to enhance their ability to influence the business’ (in other words, the board tended to ignore them). The regulator also wrote to HBOS again in 2006, highlighting its ongoing concerns about the risk management framework and warning that its growth strategy ‘posed risks to the whole group and that these risks must be managed and mitigated’. In other words, the FSA is denying furiously that it was asleep on the watch as HBOS was sliding into trouble.
The FSA statement may have been made in self-defence, but it doesn’t make life any easier for Gordon Brown. If the FSA had its eye on HBOS since 2002, could the Prime Minister really have been unaware of the situation when he appointed Crosby to the FSA post in 2007, as he claimed to the Commons committee chairmen today? Whichever way you look at it, that has to reflect badly on his judgement.
The episode also illustrates the relative toothlessness of the regulator when it came to dealing with the banks – a situation that was either actively encouraged or at least passively accepted by Brown and the Government (so if anyone was asleep on the watch...). It’s all very well the FSA spotting the problem, but that’s not much use if the banks can’t be persuaded to do anything about it – as they clearly were not, judging by the mess HBOS now finds itself in. Overhauling the relationship between regulator and banks has to be a priority in the wake of the financial crisis...
In today's bulletin:
FSA hits back in Crosby HBOS row
BT profits slump 81% amid IT hang-ups
Game over for Eidos as Lara Croft taken captive?
Spanish football's finest beat England in earnings too
Kellogg's is, like, out of order, man