HBOS former Head of Regulatory Risk questions bank's controls
HBOS became dominated by a sales culture at the expense of risk management according to the former Head of Regulatory Risk at the Bank, the BBC Money Programme team reveals tonight in the first of its new five-part series.
The programme – Credit Crash Britain on BBC Two – has also seen an internal HBOS document from 2004 which reveals that the financial regulator had voiced concerns about the bank's risk controls.
Paul Moore was the most senior manager in charge of regulatory compliance at HBOS between 2002 and 2004. It was his job to make sure the sales culture was balanced by internal risk management.
Speaking for the first time, Paul Moore says: "I think that's a concern that everybody had as to whether or not the business was under control."
Regarding the culture at HBOS, he says: "I think it was a major change – to change a bank from a fuddy-duddy, musty old place to a shopping centre, to a supermarket type culture. Inherently, that had a lot of good associated with it because it was bringing down prices and holding itself up as the customer champion."
Asked what the consequences were, he says: "Well, you can be forcing colleagues to sell things to customers that they don't need or are not suitable for their needs as required – overselling loans, etc.
"So you have risks to customers. You also have risks to colleagues. And you have risk to the whole system because you're obviously going to need more liquidity to cover the volume of business that you're actually doing."
"The retail bank was going at breakneck speed and an internal risk and compliance function feels like a man in a rowing boat trying to slow down an oil tanker. I'm not saying that there were any bad intentions in that but it was difficult to slow things down," Moore says.
He says that a "premier sales and marketing culture" was the "real focus" at HBOS.
When he left in 2004 he says that there was "a long way to go" to ensure risk was managed properly at the bank.
He says that, now, "The first thing that needs to happen is that there's got to be a broad-ranging enquiry... that needs to investigate in some detail all of the things that happened. Because out of that will come lessons."
In the 2004 review HBOS stated that it had made "positive steps to address some of the issues raised" and said it had "no actual evidence of customer detriment".
In a statement this week, HBOS told us the 2004 review "highlighted a number of actions to improve overall systems and controls. Those actions were accepted by the business", that "these reviews were shared with the FSA and the matter was then closed."
Credit Crash Britain: HBOS, Breaking The Bank, BBC Two, 7.30pm, Thursday 30 October 2008.
Presented by Paul Mason, this is the first in a special five-part series from the Money Programme examining different aspects of the credit crunch.