26 July 2016

House of Commons: HBOS failure: lessons for the regulators

The Treasury Committee published 'Review of the reports into the failure of HBOS, which draws together the findings of the Financial Conduct Authority (FCA) and the Prudential Regulation Authority's (PRA) review into the failure of HBOS.

Chair's comments

Commenting on the report, Right Hon. Andrew Tyrie MP, Chairman of the Treasury Select Committee, said:

"The regulators failed, both before and after the HBOS crisis. Seven years after the bank’s collapse, we now know just how badly. And not because the regulators showed a spirit to learn the lessons of the past. It took persistent pressure from the Treasury Committee to ensure these failures weren’t swept under the carpet.

So the HBOS experience calls for the FCA and the PRA to exhibit greater vigilance and energy if they are to win public confidence. This has on occasion been lacking.

A lot is at stake. The plain fact is that the FSA did not succeed in protecting consumers from spectacular regulatory failures. The creation of the FCA and the PRA has been an opportunity to build something much better. This is still work in progress, particularly at the FCA."

Lessons for the regulators

"The regulators have frequently sought to mitigate their responsibility for being asleep at the wheel by referring to pressure from politicians to engage in ‘light touch’ regulation. But the FSA was given statutory independence precisely to ensure that it resisted calls for weak or inadequate regulation.

The new regulators – the PRA and FCA – know that they must do better in future. They are on the case. [...]

The Financial Reporting Council

"The Financial Reporting Council’s decision not to investigate the auditing of HBOS prior to the completion of the PRA/FCA report was a serious mistake. The process by which it reached its decision suggests a lack of curiosity and diligence on the part of the FRC. Having seen the final PRA/FCA report, the FRC’s belated decision to launch an investigation into the auditing of HBOS is welcome. Better late than never. The Committee will be keeping a close eye on the FRC’s work."

The case for a new enforcement body

"The case for placing the FCA’s enforcement function in a separate body – proposed by the PCBS in 2013 and later rejected by the Treasury – has been strengthened by the findings of Andrew Green’s report. A separate body would bolster the perception of the enforcement function’s independence, and provide the regulators with greater clarity over their objectives. The case for separation merits serious re-examination. The Treasury should appoint an independent person to undertake a review."

 

Full report

© House of Commons