Andrew Tryie’s committee to grill Bank of England’s deputy governor and FCA director
By Mike Yuille | 8 December 2015
“The board and senior executive management of HBOS failed to set an appropriate strategy, and also failed to challenge a flawed business model” – Joint report, Bank of England’s PRA and the FCA
MPs are to summon two of the City’s top financial regulators to face questions next Tuesday about the collapse of the HBOS banking group.
Exaro can reveal that the House of Commons Treasury committee, chaired by Andrew Tyrie, Conservative MP, will grill leading figures from the Bank of England’s Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).
MPs are also expected to press the regulators over what enforcement action they plan to take over the crash in 2008 of HBOS, which included Halifax and Bank of Scotland, in the wake of the credit crunch.
The PRA and FCA are considering whether to bar several former HBOS executives from working in financial services – including Andy Hornby, chief executive at the banking group at the time of its collapse.
Tyrie is known for taking a tougher line over banking regulation than the government. Only last month, he gave a speech in which he pressed regulators not to give in to “special pleading” from the big banks and to be ready to split them up if reforms aimed at ring-fencing deposits in the retail arms from their riskier businesses are not effective.
“If they conclude that a bank is ‘gaming’ the ring-fence, Parliament will expect them to say so and threaten or use its powers to separate banks,” said Tyrie.
Regulators must decide by 2021 whether the ring-fencing is working as intended. Tyrie said: “That review could recommend full separation of all banks. Banks need to be reminded that a review is coming.”
He added: “Regulators should not give in to special pleading from banks in implementing the reforms introduced as a result of the financial crisis.”
Tyrie, who chaired a parliamentary commission on banking standards from 2012, said that regulators should decide on whether to seek bans “within months, not years”.
The commission on banking standards published a report two years ago on what it described as the “colossal failure of senior management” at HBOS.
At the time, Tyrie said: “The HBOS story is one of catastrophic failures of management, governance and regulatory oversight.”
A PRA spokeswoman confirmed to Exaro that Andrew Bailey, the Bank of England’s deputy governor and PRA chief executive, and Sir Brian Pomeroy, a non-executive FCA director, are set to appear before MPs on the Treasury committee next Tuesday.
The PRA and FCA last month published a damning report on the bank’s failure, including sharp criticism of the regulator that they replaced, the Financial Services Authority (FSA).
It said: “The board and senior executive management of HBOS failed to set an appropriate strategy, and also failed to challenge a flawed business model that placed inappropriate reliance on continuous growth without due regard to the risks involved.”
It continued: “Ultimate responsibility for the failure of HBOS rests with its Board. However, another striking feature of HBOS’s failure is how the FSA did not appreciate the full extent of the risks HBOS was running and did not take sufficient steps to intervene before it was too late.”
Gordon Brown, as prime minister, brokered a rescue deal in 2008 for HBOS – a takeover by Lloyds. Following the takeover, the government was forced to buy 41 per cent of Lloyds to prevent its collapse.
The PRA spokeswoman, asked whether action would be taken against any HBOS executives, said: “All of the information contained in a quarter of a million documents is being reviewed, and then we will make an independent decision as to whether to take further action.”
The PRA also instructed an independent barrister, Andrew Green, to assess the FSA’s enforcement actions that followed the HBOS failure. His paper, published last month on the same day as the first report, called for action to be taken against HBOS executives.
Green condemned the FSA for taking action against only one of the bank’s former employees, Peter Cummings, chief executive of HBOS’s corporate division. Cummings was fined £500,000 and received a partial ban on working in financial services, Green noted.
The PRA spokeswoman added that Green may also give evidence to the Treasury committee next week.
The committee is expected to confirm later this week arrangements for the special hearing or hearings.