By Ian Fraser
Published: Sunday Herald
Date: 16 January 2011
Paul Moore, former head group regulatory risk at HBOS-turned-whistleblower, has cast doubt on the rigour of the Financial Services Authority’s ongoing investigation into the collapse of the Edinburgh-based bank, on the grounds that informed critical witnesses have not been approached for evidence.
Moore said he suspects the FSA’s HBOS investigation is likely to be another attempted whitewash that will miss the mark and fail to impose disciplinary action on directors who led the bank over a cliff. Moore said: “You cannot expect a conflicted and disgraced regulator, or a conflicted and disgraced accountancy firm, to produce a proper inquiry into a disgraced bank.”
He added: “There could not possibly have been any sensible investigation by the FSA into the failures at HBOS without my involvement. But I have not been approached.”
The FSA is reported to have outsourced the HBOS inquiry to accountancy firm Ernst & Young. Yet E&Y is being prosecuted in the US over its alleged cooking of the books of collapsed investment bank Lehman Brothers and its audit of collapsed Dublin-based bank Anglo Irish is being investigated by Ireland’s accountancy institute. Moore said: “Firms like PwC, which handled the RBS investigation for the FSA, and E&Y are inherently conflicted. They do not want to find against anyone, either in a bank or in the regulator, for fear of jeopardizing future fees.”
Moore said that the FSA was an inappropriate body to handle investigations into the banking crisis. “The FSA are the rule-maker, supervisor, investigator, prosecutor and to a large extent the tribunal as well. Were they to take action against directors of RBS or HBOS, they would be exposing their own failures. The overriding inference from the evidence is that they failed miserably in the lead up to the banking crisis. If investigations were to be done properly, they would severely criticise not only firms, but the FSA as well.”
Moore caused a sensation at the Treasury Select Committee in February 2009 when he highlighted internal abuses at the bank, which collapsed into the arms of Lloyds TSB and had to be bailed out by the taxpayer.
The day after Moore’s intervention in the Treasury committee, prime minister Gordon Brown told the House of Commons that ex-HBOS chief executive Sir James Crosby had resigned as deputy chairman of the FSA in order “to contest Mr Moore’s serious allegations”.
Moore said he is surprised that, 23 months after those events, Crosby has still not sought to disprove Moore’s claims, which included that he presided over an out-of-control institution that had become so sales-obsessed it had become incapable of acting prudently. Moore said: “Crosby has only denied my allegations once, which was on the day that he resigned, and after that there has been total silence both from him and from the FSA. Some might consider this silence to be a strong inference that they accept their guilt.”
After his intervention in the Treasury committee’s banking inquiry, Moore said he fully expected “a proper judicial enquiry which would have brought out all the key public policy points, including those relating to the failures of the HBOS board , its auditors KPMG and the FSA. But that never happened.” He said he will be lobbying Andrew Tyrie, who took over as chairman of the committee in June, for such a no-holds-barred investigation. “Without such an inquiry, the public will never know what really happened, no one will be held to account, public policy won’t be rebuilt and bankers will continue to be paid bonuses that simply do not reflect what they are worth.”
Moore suspects there has been no proper inquiry because the Conservative-led government “is too scared of losing political funding from their friends in the City if they took action against any of them.” Moore stresses that investigations into bank failures must be objective if they hare to have any validity. “The original Treasury Select Committee review was never forensic enough, even though it did blame management, non-executives and the regulator.”
He said without proper inquiries “the public will never know what really happened, no one will be held to account, public policy won’t be rebuilt properly and bankers will continue to be paid bonuses that don’t reflect what they are worth.”
The FSA last month exonerated the board of RBS, triggering an outcry when it said its report into RBS, which was outsourced to “Big Four” accountancy firm PWC, would not be made public. FSA chairman Lord Turner later caved in to political and public pressure and said a sanitized version would be published in March.
In his evidence to the Treasury Select Committee in February 2009, Moore highlighted a “total failure of all key aspects of governance [at the bank]. In my view and from my personal experience at HBOS, all the other specific failures stem from this one primary cause.” Neither the FSA nor Lloyds Banking Group would comment.
An edited version of this article was published on Herald Scotland on January 16th, 2011