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Bank of Scotland has been fined £45.5m for failing to report suspicions of fraud in a case that resulted in six people being jailed .
The UK’s Financial Conduct Authority (FCA ) imposed the penalty after finding that there had been “insufficient challenge, scrutiny or inquiry across the organisation” once evidence had emerged of suspicious conduct in 2007.
The manager in charge of dealing with distressed customers at the bank’s Reading branch at the time, Lynden Scourfield , was sentenced to 11 years in jail in 2017 for running a fraud that cost businesses and the bank hundreds of millions of pounds.
A court heard that Mr Scourfield personally made close to £700,000 from the scam, with some of the proceeds spent on prostitutes and luxury holidays to Thailand and Barbados.
Bank of Scotland, which was then part of Halifax Bank of Scotland (HBOS) and is now owned by Lloyds, discovered suspicious activity in its impaired assets team in early 2007 but did not inform regulators until July 2009, the FCA said on Friday. The bank did not report its suspicions to any other law enforcement agency.
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“Bank of Scotland’s failures caused delays to the investigations by both the FCA and Thames Valley Police,” said Mark Steward, executive director of enforcement and market oversight at the FCA.
“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.”
Lloyds said it had co-operated with the FCA throughout the regulator’s investigation and that the failures at Bank of Scotland were “not intentional”.
Antonio Horta-Osorio, Lloyds chief executive, said: “I want to apologise once again for the very deep distress caused to the customers affected by the HBOS Reading fraud. The perpetrators of the fraud rightly went to jail for the crimes they committed. The Group’s management team has been committed to putting things right.”
The fraud involved Mr Scourfield referring business customers in financial difficulty to his friend, businessman David Mills, and a third man, Michael Bancroft.
Mr Mills and Mr Bancroft claimed to be turnaround consultants but were found to have bullied business owners and squeezed them for large consultancy fees.
“If Bank of Scotland had communicated its suspicions to the FSA in May 2007, as it should have done, the criminal misconduct could have been identified much earlier,” the FCA said, referring to its predecessor the Financial Services Authority.
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