FCA Fine Bank Of Scotland £45 Million For Fraud Non-Disclosure
The Financial Conduct Authority (FCA) has fined the Bank of Scotland (BOS) £45 million for failing to disclose information about suspicions it held regarding suspected fraudulent activity within the bank’s Impaired Assets (IAR) team at its branch in Reading.
The FCA found a history of uncooperative activity after the bank became suspicious of the actions of some of its employees in 2007 and consequently failed to notify the Financial Services Authority (FSA), the regulator at the time.
The FCA found that the director of the Reading branch’s Impaired Assert Team, Lyndon Scourfield, had been sanctioning limits and additional lending facilities beyond the scope of his authority for at least three years before any irregularities were discovered.
However, by 3 May 2007, BOS were aware of the breaches and understood the impact and losses they would inflict. Despite this, the BOS spent the next two years failing to scrutinise and challenge the actions of the director.
The FCA claimed that the BOS had failed to consider the information it had uncovered. There was also no evidence to suggest employees had thought of notifying a regulator. In fact, the information was not fully disclosed to the FSA until July 2009.
Six individuals were sentenced for their part in the fraud in 2017 following an investigation by Thames Valley Police. This included the sentencing of Lynden Scourfield and another BOS employee, Mark Dobson.
The FCA have used the case to highlight the difficulties in policing commercial lending which it claims is ‘still largely unregulated in the UK’.
Because the BOS agreed to resolve the matter, the FCA have also stated that their fine was reduced by 30%. They claimed that were it not for the discount, the BOS would have faced a fine of £65 million.
A statement by the FCA claimed:
“If BOS 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 delay also risked prejudice to the criminal investigation conducted by Thames Valley Police. Full disclosure would also have allowed the FSA, at an earlier opportunity, to assess BOS’s response to the issue and its approach to customers and complaints.
“The FCA has also today banned four individuals from working in financial services due to their role in the fraud at HBOS Reading. They are Lynden Scourfield, Mark Dobson, Alison Mills and David Mills.”
Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said:
“Bank of Scotland failed to alert the regulator and the police about suspicions of fraud at its Reading branch when those suspicions first became apparent. BOS’s failures caused delays to the investigations by both the FCA and Thames Valley Police. 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.”