The Financial Conduct Authority (FCA) has fined Bank of Scotland (BOS) £45.5m for failing to disclose information on fraud suspicions.
According to the regulator, BOS had identified suspicious conduct within the Reading-based Impaired Assets (IAR) team of Halifax of Scotland, which could have been fraudulent. The FCA said BOS had failed to ‘be open and cooperative and failed to disclose information appropriately’ to the Financial Services Authority (FSA), which had been the regulator at the time.
BOS allegedly identified the dubious operations of the IAR team in 2007. The director of the Reading IAR team, Lynden Scourfield, had been sanctioning limits and additional lending facilities outside his authority for a minimum of three years, it said. BOS was aware the breaches would have substantial losses to the bank.
For two years, the bank failed to ‘understand and appreciate the significance of the information that it had identified’ the FCA stated, with no action being took.
In 2009, BOS provided the FSA with a full disclosure report on the situation including the results of its internal investigation. Following this, the FSA reported it to the National Crime Agency.
Following an investigation by Thames Valley Police in 2017, six individuals including Lynden Scourfield, were sentenced for their participation in the fraudulent activity.
Commercial lending is largely unregulated, and no specific rules were imposed over the IAR’s activities; however, BOS was required to share its suspicions and cooperate with the FSA, the FCA said.
Had the information been handed over in 2007, the criminal activity could have been uncovered quicker. The delay also left risk for prejudice to the criminal investigation conducted by the Thames Valley Police.
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 Bank of Scotland agreed to resolve the matter, and this earnt them a 30 per cent discount, bringing the fine down from £65m.
In addition to the fine, four individuals have been banned from working in financial services.
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