Watchdogs To Examine Grounds For HBOS Ban

Banking regulators are to examine whether there are grounds for a formal City ban on HBOS's former chiefs as a three-year inquiry concludes that they must shoulder much of the blame for the bank's collapse.

Sky News has learnt that the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) are likely to say later that they will undertake further work on potential enforcement action against individuals including James Crosby, HBOS's former chief executive.

Their statements will come in response to their joint report on HBOS and a separate document produced by Andrew Green QC, who has examined the reasonableness of the former Financial Services Authority’s (FSA) decision to fine and ban only one former HBOS manager.

Collectively, the two reports will run to more than 600 pages.

Sky News also understands that the accounting watchdog, the Financial Reporting Council (FRC), is expected to announce that it has not identified a case for investigating misconduct by HBOS's auditors, KPMG, under its powers.

The regulators' decisions will come more than seven years after HBOS was rescued by Lloyds TSB with the backing of the then Labour government.

The enlarged Lloyds Banking Group (Other OTC: LLOBF - news) - the UK's biggest high street lender - then had to be recapitalised with more than £20bn of taxpayers' money, part of which remains to be recovered.

The report by the FCA and PRA is likely to be the last major piece of work published as a consequence of the 2008 financial crisis, which saw banks such as Bradford & Bingley, Northern Rock and Royal Bank of Scotland (LSE: RBS.L - news) (RBS) taken into partial or full public ownership.

Sky News disclosed on Monday that one of the significant allegations in this week's report will be that directors of HBOS leant on auditors to accept their view on bad loan provisions in a bid to reduce concerns about its financial health.

A source said the conclusion that the bank's former bosses had intervened to attempt to persuade KPMG to adjust its view of the level of provisioning required would be among the revelations in this week's report by the FCA and PRA.

Mr Crosby and Andy Hornby, who were successively chief executive of HBOS in the seven years before its collapse, and Lord Stevenson, the bank's former chairman, will all face heavy criticism.

An inquiry by the Parliamentary Commission on Banking Standards (PCBS) in 2013 accused the trio of "a colossal failure of management" and of being in denial about the causes of HBOS's troubles.

Regulators are now powerless to fine any of the former executives even if they are deemed to have been culpable because a statute of limitations has now expired.

That revelation will intensify questions about why authorities failed to commission the official inquiry until the Treasury Select Committee pressured them to do so in 2012.

Peter Cummings, who ran the bank’s ill-fated corporate lending division, was fined £500,000 and banned for life from the industry in 2011.

It (Other OTC: ITGL - news) was unclear on Wednesday night how many former HBOS board members would be included in the regulators' review of further possible enforcement action.

Sources said that a number of the ex-HBOS directors believed there were no grounds for regulators to seek formal prohibition proceedings.

Only Mr Hornby still has a senior role in mainstream business as an executive at Gala Coral, which is in the process of merging with rival bookmaker Ladbrokes (LSE: LAD.L - news) .

Fewer than a handful of bankers have been banned from the City for their conduct before the financial crisis, with a new framework aimed at holding executives to account - known as the Senior Managers' Regime - due to come into effect next year.

The former FSA's supervision of HBOS will also be severely criticised on Thursday.

Publication of this week's report has been delayed by more than a year of legal wrangling, with a process known as Maxwellisation - which allows those criticised in official inquiries to challenge their conclusions - responsible for much of the hold-up.

The PCBS, which described HBOS’s troubles as "an accident waiting to happen", led to Mr Crosby relinquishing his knighthood and one-third of his £580,000-a-year pension in 2013

"There is now a reasonable prospect that the public will at least have an opportunity for a full explanation of this catastrophic failure," Andrew Tyrie, the Treasury committee chairman, said last week.

"The work of the advisers can give Parliament and the public more confidence that the role of the FSA, in the failure of HBOS, will have been fully disclosed."

The FCA, PRA and FRC all declined to comment.