Regulator fines Bank of Scotland for failing to report fraud suspicions

Written by Oliver Wade
21/06/2019

The Financial Conduct Authority (FCA) has today fined Bank of Scotland (BOS) £45.5m after the lender failed to disclose information about its suspicions that fraud may have occurred at the Reading-based Impaired Assets (IAR) team of Halifax Bank of Scotland (HBOS).

The regulator revealed that the bank failed to be “open and cooperative”, while also failing to disclose information appropriately to the then regulator, the Financial Services Authority (FSA).

Commenting, FCA executive director of enforcement and market oversight Mark Steward 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. BOS’s failures caused delays to the investigations by both the FCA and Thames Valley Police.

“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 lender identified suspicious behaviour in its IAR team in early 2007. The director of the IAR team at the Reading branch, Lynden Scourfield, has been sanctioning limits and additional lending facilities beyond the scope of his authority, undetected, for at least three years. BOS was aware by 3 May 2007 that the impact of these breaches would result in “substantial losses” for the bank.

It was not until July 2009 that BOS provided the FSA with full disclosure in relation to its suspicions, including the report of the investigation it had conducted in 2007. BOS also did not report its suspicions to any other law enforcement agency. The FSA reported the matter to the National Crime Agency (then the Serious Organised Crime Agency) on 26 June 2009.

In 2017, following an investigation by Thames Valley Police, six individuals including Lynden Scourfield and another BOS employee, Mark Dobson, were sentenced for their part in the fraud committed through the IAR.

The FCA said if BOS had communicated its suspicions to the FSA in May 2007, as it should have done, the criminal misconduct could have been identified much earlier. The delay also risked prejudice to the criminal investigation conducted by Thames Valley Police. Full disclosure would also have allowed the FSA, at an earlier opportunity, to assess BOS’s response to the issue and its approach to customers and complaints.

Since BOS agreed to resolve the issue, it qualified for a 30 per cent discount. Were it not for the discount, the FCA would have imposed a financial penalty of £65m.

The FCA has also today banned four individuals from working in financial services due to their role in the fraud at HBOS Reading. These are Lynden Scourfield, Mark Dobson, Alison Mills and David Mills.

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