City watchdog reveals inquiry into collapse of HBOS

HBOS, the bank that collapsed at the height of the credit crisis and had to be rescued by Lloyds Bank, is facing the prospect of disciplinary action from City regulators, the Financial Services Authority revealed for the first time yesterday.

The FSA said an "enforcement investigation" into HBOS, which collapsed during the autumn of 2008, was"ongoing" and that the final results of that inquiry were "not yet known".

The regulator almost never comments on such investigations until they have been completed, but it was forced to do so yesterday in order to explain why it had not yet announced a review of the HBOS scandal, despite having done so in the case of Royal Bank of Scotland, the other major British casualty of the credit crisis, more than six months ago.

"There is a public interest in knowing what happened at HBOS as well as at RBS," said Adair Turner, the FSA's chairman, but he added that "while theenforcement process is ongoing, it would not be appropriate to launch a wider review".

The investigation into HBOS will cause nervousness at Lloyds, which continues to struggle to put the legacies of the acquisition behind it, as well as with senior figures involved at the bank in the run-up to its collapse.

News of the inquiry has emerged at a particularly awkward moment for Andy Hornby, the chief executive of HBOS until its takeover. Earlier this week, he was unveiled as the new chief executive of Gala Coral, the bookmaking company, having stood down from the same role at Alliance Boots, earlier this year, saying that he needed a break.

While it is now almost three years since the bank was taken over in a deal brokered by the then Labour government, there will be intense interest in the regulator's findings.

The FSA has a variety of sanctions available to it against organisations and individuals, should it find breaches of regulation took place at HBOS, though it could also announce that it has found no grounds for disciplinary action.

Last year's decision not to takeaction against anyone involved with the collapse of RBS prompted a storm of controversy and calls for the regulator to publish the details of the investigation that had led to this conclusion. Yesterday, Lord Turner said the FSA remained in negotiations over what it could publish in relation to the RBS case, following a row over whether its deliberations were governed by laws to safeguard the confidentiality of organisations where no disciplinary action is taken.

Lord Turner also vowed that the FSA would not be caught up in similar wrangling once it was able to launch its review of the HBOS collapse. "Producing such a public information report will be appropriate whatever the final result of the enforcement investigation," he said.

A spokesman for the regulator said yesterday that it remained unclear how much longer the investigation into HBOS would take, though privately the watchdog does not expect to be in aposition to make its review public this year. Nor has the regulator yet been able to confirm when the RBS deliberations, or even summaries of them, would be published.

The FSA also sought to draw a line in the sand, insisting that it did not plan to launch similar investigations into any of the other credit crisis collapses. This means, for example, there will be no investigation into the failures of Bradford & Bingley, though there have already been several reports published into the demise of Northern Rock.

Despite the public outrage over the perceived misdeeds of bankers in the run-up to the credit crisis, there have been remarkably few cases of regulatory action against individuals. A number of senior directors at Northern Rock have faced sanctions, whileJohnny Cameron, the head of investment banking at RBS, has agreed not to take up a senior position in the City again. Other high-profile figures from the crisis, however, were not sanctioned and have now resumed their careers elsewhere.

Willis fined £6.9m

Willis, the insurance broking giant, was ordered yesterday to pay a £6.9m fine for failing to ensure its safeguards against corruption and bribery weresufficiently robust. The Financial Services Authority said Willis had "failed to take the appropriate steps to ensure that payments it was making to overseas third parties were not being used for corrupt purposes".

The FSA said it had looked at payments worth £27m, but pointed to two particular payments made in Egypt and Russia, totalling more than £140,000, details of which it has passed to the Serious Organised Crime Agency. Willis's chief executive, Brendan McMann, said: "When we discovered our business had not got that right in the past, we were swift to engage with the FSA towards today's regulatory resolution."

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