Bank of Scotland has been fined £45.5 million by the City watchdog for failing to report suspicions of fraud at its Reading branch.
The Financial Conduct Authority (FCA) said the bank failed to sufficiently scrutinise suspicious behaviour by bankers at the impaired assets (IAR) team of Halifax Bank of Scotland (HBOS).
The City regulator said the bank’s failure to report its concerns “caused delays to the investigations by both the FCA and Thames Valley Police”.
In 2017, a group of six bankers, including two former HBOS employees, were jailed for their involvement in a £245 million loan scam perpetrated from the Reading branch.
The scam, which took place between 2003 and 2007, saw struggling small firms being referred to a turnaround consultancy and being loaded with unmanageable debts and fees.
Lyden Scourfield. a former senior HBOS manager, was sentenced to 11 years and three months in prison for his part in the scam.
Bank of Scotland became aware of suspicious conduct in its IAR team in May 2007, but, over the next two years, on numerous occasions failed to recognise the significance of its concerns, the FCA said.
The watchdog said there was “insufficient scrutiny” across the banking group.
It was not until July 2009 that Bank of Scotland provided the FCA with full disclosure on the matter.
The FCA said it would have slapped Bank of Scotland with a £65 million fine, but reduced it following the bank’s agreement to resolve the matter.
Mark Steward, executive director of enforcement and market oversight at the FCA, said: “Bank of Scotland failed to alert the regulator and the police about suspicions of fraud at its Reading branch when those suspicions first became apparent.
“There is no evidence anyone properly addressed their mind to this matter or its consequences.
“The result risked substantial prejudice to the interests of justice, delaying scrutiny of the fraud by regulators, the start of criminal proceedings as well as the payment of compensation to customers.”
The FCA also announced on Friday that it has banned four people from working in financial services in the future for their involvement in the scandal – Scourfield, Mark Dobson, Alison Mills and David Mills.
Lloyds Banking Group, which acquired HBOS at the height of the 2008 financial crisis, has drawn a line under the scandal and said it welcomes the FCA’s findings.
Chief executive Antonio Horta-Osorio said: “We take today’s enforcement notice very seriously. 2007-2009 was a dark period in HBOS’s history, prior to its acquisition by Lloyds Banking Group.
“I want to apologise once again for the very deep distress caused to the customers affected by the HBOS Reading fraud.
“The perpetrators of the fraud rightly went to jail for the crimes they committed. The group’s management team has been committed to putting things right.”