Friday 22 November 2019

LLoyds faces questions over HBOS report claiming group had evidence of fraud

The report claims that Lloyds had evidence of the fraud in October 2008.

Lloyds took HBOS over during the financial crisis (Yui Mok/PA)
Lloyds took HBOS over during the financial crisis (Yui Mok/PA)

By Ravender Sembhy, Press Association City Editor

Lloyds Banking Group is facing renewed questions over its conduct regarding fraud at the bank’s HBOS Reading unit after the publication of a damning report.

The so-called Turnbull report, written in 2013, claims that Lloyds had evidence of the fraud in October 2008, just months before the lender rescued HBOS at the height of the financial crisis.

It also alleges that the “strategy since July 2007, and possibly from 2005, has been to conceal the Reading Incident”.

It states that former directors at HBOS and certain senior executives have committed serious breaches of regulatory rules, including of a criminal nature.

Lloyds has set aside £100 million for victims of the fraud, which include TV star Noel Edmonds, at the hands of HBOS Reading staff between 2003 and 2007.

Corrupt financiers from the branch were jailed last year for the £245 million loans scam, which destroyed several businesses and saw the villains squander the profits on high-end prostitutes and luxury holidays.

The report claims that the estimated losses related to the fraud stand at £1 billion.

A Lloyds spokesman said: “This report was provided to the FCA and the police at the time, in 2014.

“The work was initiated by our employee at the time on her own initiative. As soon as it came to Lloyds’ knowledge, the then Head of Group Audit asked the employee to set out what she had found. It was then provided to the FCA and the police.

“The FCA is currently investigating the extent and nature of the knowledge of the discovery of misconduct within HBOS Impaired Assets office in Reading and HBOS’ communications with the regulator after the initial discovery of the misconduct.”

Lloyds has also provided the report to retired judge Dame Linda Dobbs, who is assessing whether the issues relating to HBOS Reading were investigated and appropriately reported to the authorities following the HBOS takeover.

Under-fire accountancy giant KPMG also stands accused in the report of misconduct and regulatory breaches, including “those of a criminal nature”.

The conduct of PwC is called into question, with the report citing regulatory failings including those relating to “money laundering offences”.

Deloitte is also censured for not raising concerns into the conduct of directors.

The Financial Services Authority, which later became the Financial Conduct Authority and Prudential Regulation Authority, “may have had an involvement together with Lloyds Banking Group, in concealing the misconduct and failings of KPMG,” the report claims.

The Financial Conduct Authority, which is carrying out an inquiry into HBOS, declined to comment.

A KPMG spokesman said: “We strongly refute these allegations, which we believe to have no basis in fact.

“Prior to its publication today, we had not seen the Project Lord Turnbull report and have had no involvement in its preparation.

“It is very concerning to us that such serious and defamatory allegations have been made in circumstances where the author of the report has not had the benefit of reviewing any of the relevant audit working papers.

“It is also unclear to what extent the report has taken account of, or accurately represented, the relevant professional obligations of an auditor.

“We have cooperated fully with the detailed investigations undertaken, including those by the PRA/FCA and the FRC, none of which concluded that our work did not meet the applicable audit standards of the time.”

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