FSA knew of HBOS problems in 2002

By politics.co.uk staff

The City watchdog has admitted it knew there were problems with HBOS as early as 2002.

The Financial Services Authority (FSA) said it conducted a full risk assessment of HBOS in late 2002 which “identified a need to strengthen the control infrastructure within the group”.

Yesterday, former HBOS head Sir James Crosby quit the FSA as deputy chairman after allegations he sacked senior employee Paul Moore for warning in 2004 that the bank was expanding too fast.

In a statement, the regulator revealed it had been aware of potential problems with the bank as far back as 2002.

Following the initial FSA report, auditors PricewaterhouseCoopers (PwC) were asked to investigate HBOS and also found problems with its risk management.

By 2004, the group had made good progress in addressing risks – but those in charge of risk did not have enough influence on the business, the regulator said.

In 2004, Mr Moore was made redundant and went to the FSA with allegations the new group risk director, Jo Dawson, lacked “integrity” and experience in risk management.

According to the FSA, the allegations were taken seriously and followed up by KPMG, which investigated the claims and concluded Ms Dawson was qualified for the job.

Mr Moore claims he was sacked by Sir James Crosby because he had warned HBOS was “going too fast” and “was a serious risk to financial stability and consumer protection”.

KPMG confirmed its report found Mr Moore was not sacked for raising concerns.

However, the auditor added: “This piece of work had a narrow focus on regulatory compliance risk at HBOS – and did not examine the bank’s overall sales or investment strategy or any other aspects of the bank’s operations.”

Giving evidence to the Treasury select committee earlier this week, the former heads of HBOS defended the former risk director Ms Dawson.

Andy Hornby, former HBOS chief executive said: “James Crosby. appointed Jo Dawson who is a very experienced banker and had a career previously at NatWest and then at HBOS; and there was a view taken, which I endorse, that good skills and real broad awareness of banking being brought to that job was going to be helpful.”

Lord Stevenson, former HBOS chairman, said: “Jo Dawson. is a quite outstanding executive, who had total access to the board, to me and everyone else and was constantly confronting the board on risk issues.”

However, they admitted she had no formal risk qualification.