By Simon Miller

The Financial Services Authority (FSA) has censured the Bank of Scotland (HBOS) for failures during the financial crisis.

Following an investigation, the FSA judged that the firm was guilty of “very serious misconduct, which contributed to the circumstances that led to the UK government having to inject taxpayer funding into HBOS”.

The authority specifically found that HBOS failed to comply with Principle 3 of the FSA’s Principles for Businesses. Principle 3 states: “A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems”.

In a statement, the FSA said that under normal circumstances, the severity of HBOS’s failings would warrant a very substantial financial penalty.

“However, because public funds have already been called on to address the consequences of Bank of Scotland’s misconduct, levying a penalty on the enlarged group means the taxpayer would effectively pay twice for the same actions committed by the firm.” The regulator said.

It added: “Therefore, to reflect these exceptional circumstances, the FSA has not levied a fine against Bank of Scotland but has issued a public censure to ensure details of the firm’s misconduct can be viewed by all and act as a lesson in risk management failings.”

Tracey McDermott, FSA acting director of enforcement, said: “Banks and other firms have to manage their business by ensuring that their systems and controls are appropriate for the risks that they are running. The conduct of the Bank of Scotland illustrates how a failure to meet regulatory requirements can end not just in massive costs to a firm, but losses to shareholders, taxpayers and the economy.”

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