HBOS under James Crosby was ‘dangerously out of control’

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By Ian Fraser

Published: The Sunday Times

Date: 26 April 2009

Sir James Crosby, former chief executive of HBOS and former director of the FSA; image courtesy of The Times

An accountant from the bank’s insurance arm says there was a woeful lack of supervision

HBOS under former chief executive Sir James Crosby was “dangerously out of control” with a sloppy attitude towards staff expenses and financial supervision, according to a whistleblower who was sacked after raising his concerns.

A temporary secretary was given a password letting her authorise expenses worth hundreds of thousands of euros, according to a submission to the Treasury Select Committee’s inquiry into the causes of the banking crisis.

Tim Hicks, who worked as a development accountant in the bank’s insurance arm, Clerical Medical Europe (CME), alleges there was “a catastrophic failure of controls” within that business.

Hicks said he alerted bosses to anomalies. However, he said nobody in HBOS’s “control community”, which included compliance, risk management and human resources staff as well as audit accountants, believed there was anything wrong with such behaviour, even though it contravened internal codes of conduct.

“There was a catastrophic failure in the entire control community within HBOS,” Hicks told The Sunday Times. “It was made up of ‘yes’ men who would not stand up against failures in control for fear of being seen to ‘rock the boat’. Meanwhile, the sales people were treated like kings.”

Hicks, who has worked in financial services for most of his career, said the control situation at HBOS “was the worst I have come across”. “Even basic control concepts, such as that no one should approve their own expenses, were ignored. An awful lot of people were paid an awful lot of money to control HBOS but they just took the money and didn’t bother,” he said. He believes this was partly down to a sales-driven culture. Anything that got in the way of sales was seen as a nuisance.

Hicks believes media coverage has given the impression that governance failures at HBOS occurred solely at board level. However, in evidence submitted to the Treasury Select Committee, he alleged the problem was endemic. He made his submission days after Paul Moore, the bank’s former group head of regulatory risk, gave evidence saying he had been sacked after warning the bank was growing too fast.

After raising red flags, Hicks said he was forced out by CME in much the same way as Moore was ousted by Crosby. “I was forced out because I had opposed failures in financial control.” Hicks was surprised when all of the senior executives responsible for safeguarding financial control at HBOS supported the findings of an internal investigation that ruled that letting a temp approve invoices and expenditure was not a controls failure. He subsequently took CME to the Luxembourg industrial court and won a case for unfair dismissal.

HBOS declined to comment.

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