Factbox: UK's HBOS - a 'simple bank that created a big problem'

LONDON (Reuters) - The Bank of England's Prudential Regulation Authority (PRA) and Britain's Financial Conduct Authority (FCA) published a report on Thursday into why HBOS bank failed in October 2008 during the global financial crisis.

The bank, Britain's biggest mortgage lender, had to be taken over by Lloyds, which itself then needed a 20 billion pound ($30 billion) taxpayer bailout.

A separate report by independent lawyer Andrew Green looked at the enforcement actions taken by the then regulator, the Financial Services Authority (FSA) after the failure.

Seven former senior HBOS executives and board members still hold roles in Britain's financial industry which require regulatory approval.

The reports, runnning to more than 500 pages in total, cost 7 million pounds to compile.


- Boards must be responsible for ensuring a bank's business model is sustainable with safety and soundness embedded in its culture.

- Boards must have an appropriate mix of experience to challenge executives.

- Senior managers at banks should identify threats to the business and notify regulators in an open way.

- Regulators must be ready to intervene and force a bank to change its business model, free from undue influence.

- A bank's home regulator must understand the scope of local oversight of overseas branches and understand the international business.

- FCA and PRA board members from industry must manage any perceived or actual conflicts of interest.

- The PRA and FCA said they will conclude a review as to whether further enforcement action should be taken, as early as possible in 2016.


- Ultimate responsibility for the failure rests with HBOS's board and senior management who failed to set an appropriate strategy and failed to challenge a flawed business model, causing a "simple bank that created a big problem".

- A more interventionist stance by the FSA "could have delivered different outcomes".

- FSA executive management led by its CEO John Tiner had a deficient approach to supervision and failed to spot risks or intervene in time. FSA board oversight, led by chairman Callum McCarthy, was insufficient.

- James Crosby was both HBOS CEO until 2006 and an FSA board member but no evidence he had any undue influence on how bank was supervised.

- Prevailing political view that regulation of banks should be "light touch" to keep British financial services competitive, along with weak global bank capital standards, limited regulators' challenge to HBOS management.

- The Financial Reporting Council, which polices accountants, was asked to consider whether there were grounds for investigating KPMG, which audited HBOS. FRC's review found that criteria for starting a probe were not met, but it will consider any new material in the HBOS report once published.


- FCA and PRA should now consider whether any other former senior managers, including but not limited to former CEO Andy Hornby and former chairman Dennis Stevenson, should be subject of an enforcement investigation with a view to banning them from the industry.


- Scope of FSA's enforcement investigation was "not reasonable". At a "minimum" FSA should have also investigated CEO Andy Hornby.

- FSA's decision-making process was "materially flawed".

- FSA should have conducted an investigation or series of investigations wider in scope than just into conduct of Peter Cummings and HBOS corporate division.

- FSA gave no proper consideration to investigating former CEO Andy Hornby, former chairman Stevenson, or HBOS itself.

- Losses in international and treasury divisions of such magnitude that FSA should have considered investigating former CEO of international division, Colin Matthew, now retired, and former CEO of treasury division, Lindsay Mackay, now CEO of Alpha Bank London Ltd.

- There is plainly a public interest in considering afresh whether to ban other former top HBOS executives.

(Reporting by Huw Jones and David Milliken)