Andrew Swan
Andrew Swan

Member Article

Financial Services Authority fines former HBOS Executive Director

The Financial Services Authority (FSA) has fined the former executive director of HBOS, Peter Cummings, £500,000 for his failings within the Corporate Division between January 2006 and December 2008. He has also been banned from holding any senior position in a UK bank, building society, investment or insurance firm.

The FSA found that Cummings failed to exercise due skill, care and diligence by pursuing an aggressive expansion strategy without suitable controls in place to manage the associated risks and that he failed to take reasonable care to ensure that the Corporate Division adequately and prudently managed high value transactions which showed signs of stress.

Cummings was found to be aware that there were significant issues with the Corporate Division’s controls. These included staff being incentivised towards revenue rather than risk, weaknesses in management information and a culture which saw risk management as a constraint on the business rather than an integral part of it.

The division pursued an aggressive growth strategy, which peaked in 2007 and continued into 2008. Cummings was aware during this period of concerns within HBOS about some of the markets they were operating in. He maintained an aggressive strategy and the division increased its market share, whilst other lenders were pulling out of deals. This at a time when he should have been taking reasonable steps to mitigate potential risks.

The FSA judged Cummings to be personally culpable in breaching Statement of Principle 6 of the FSA’s Code of Practice for Approved Persons, by failing to exercise due skill, care and diligence in managing HBOS’s Corporate Division during this critical period. They also found that he was knowingly concerned in the misconduct which was the subject of the separate Final Notice issued to Bank of Scotland plc on 9 March 2012.

The FSA’s Director of Enforcement and Financial Crime, Tracey McDermott, commented: “Despite being aware of the weaknesses in his division and growing problems in the economy, Cummings presided over a culture of aggressive growth without the controls in place to manage the risks associated with that strategy. Instead of reacting to the worsening environment, he raised his targets as other banks pulled out of the same markets.

“It is essential that senior executives understand that incentivising revenue over risk is a dangerous folly. Growth is a sound ambition for any business but risk must be properly managed and robust controls are imperative to ensure growth is achieved in a way that is both stable and sustainable.”

Andrew Swan, Head of Financial Crime at Short Richardson & Forth LLP said: “This sends out a serious message from the FSA that the banks cannot pursue aggressive investment strategies without paying full heed to the inherent risks. Such tactics can have a devastating effect on the losing investors. As far as I am aware, this is the highest fine ever imposed by the FSA on a senior executive for such failings.”

This was posted in Bdaily's Members' News section by Andrew Swan .

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