Former HBOS Director Sanctioned by FSA

Peter Cummings, the former head of corporate lending at HBOS, has been given a lifetime ban from "performing any significant influence function" in regulated financial services "on the grounds that he lacks competence and capability to perform such functions" and a fine of pound;500,000 by the Financial Services Authority.

The former banker was head of a division which lent billions of pounds to property developers, and which was found guilty by the FSA of "very serious misconduct" in March 2012. The FSA determined that, in pursuing an aggressive expansion strategy within his division, Mr Cummings failed to implement suitable controls to manage risk, and also failed to ensure that the division adequately managed high value transactions showing signs of stress.

The specific failures for which he was sanctioned included his failure to exercise "due skill, care and diligence in managing the business of the firm" and his responsibility for the fact that the bank had "failed to take reasonable care to organize and control its affairs responsibly and effectively, with adequate risk management systems. . . . "

Mr Cummings asserted that his conduct did not fall below the required regulatory standards and that the decision to penalize him was made under political pressure.

Lofchie Comment: This is a tremendously interesting case, even for those (like me) who are not subject to and do not give advice with respect to UK law, as it raises very significant questions of regulatory policy. The case may be to some extent a forerunner of where regulation is going in the United States. See, e.g.,Section 210(g) of Dodd-Frank.In the announcement made by the FSA that details the case against Mr. Curmmings, it is clear that the regulatory breaches of which he was accused were those relating to the absence of required skill, care and judgement in his management of the business and operations of the bank. There was no allegation that he acted under the influence of some extraordinary conflict of interest (other than this bonus, which does not seem to have been unusual in light of his position). For me, the fundamental question is whether this a good direction for regulatory enforcement policy. Should one be able to sanction individuals for business decisions that went bad in retrospect, even where there was no evidence of a conflict of interest or moral misconduct? Are such enforcement actions inherently too politically charged ever to be fair? How can the charged individual prove that he made reasonable decisions in circumstance in which he managed a firm that went bankrupt?