FSA "fox in the chicken house" deputy chairman resigns

[David Guyatt]

HBOS former CEO was also deputy chairman of the UK Financial Services Authority.

No wonder the FSA was bloody useless. Is it an eensy-weensy bit reminiscent of Bernard Madoff writing rules (the "Madoff Exception") during his tenor at the SEC, I wonder?

Can anyone explain to me why a government watchdog can be expected to function when it is staffed with the people it is supposed to be "watching"?

http://news.sky.com/skynews/Home/Politic..._Authority

FSA Deputy Chair Crosby Resigns

The Prime Minister says the former chief executive of HBOS "was right" to step down as deputy chairman of the FSA.

Sir James Crosby has been an adviser to the Government on the mortgage market

Sir James Crosby has resigned following allegations he fired an employee who warned the bank was taking too many risks.

During Prime Minister's Questions, Gordon Brown said: "These are serious but contested allegations in relation to Sir James Crosby.

"These are allegations that he will have to defend, so it is right that he has stepped down as vice chairman of the Financial Services Authority."

Sir James, who left HBOS in 2006, has advised the Government on the mortgage market and on ID cards.

Opposition leader David Cameron asked Mr Brown if he accepted that he had made "a serious error of judgement" in appointing Sir James to the FSA.

Brown said the claims were contested

But the Prime Minister insisted that the allegations would be investigated and that the Conservatives should wait for the outcome.

He added that Sir James was no longer an economic adviser to the Government.

In a statement, Sir James said: "I am full of admiration for my colleagues at the FSA and the work they are doing under extreme pressure.

"As a non-executive director I have an absolute responsibility to ensure that I do not make their task any more difficult.

"Therefore, whilst I am totally confident that there is no substance to any of the allegations, I nonetheless feel that the right course of action for the FSA is for me to resign from the FSA Board which I do with immediate effect."
In written evidence to the Treasury Select Committee yesterday, HBOS' former head of risk, Paul Moore, said that he was fired in 2005 after warning that the bank was "going too fast".

Mr Moore insisted the current crisis could have been avoided if there had been adequate systems to hold bank chiefs in check.

"I told the board they ought to slow down but was prevented from having this properly minuted by the chief financial officer," he said.

The FSA said: "Sir James Crosby has decided to resign from the board of the FSA, for the reasons he has set out in his public statement, and we would like to thank him for his very significant contribution to the FSA over the past few years."

The regulator added that Mr Moore's allegations has been "fully investigated" by KPMG.

"The chairman of the FSA will write to the Chancellor of the Exchequer by the end of today," it said in a statement.

The Lib Dem treasury spokesman Vince Cable said: "My objections to having Sir James Crosby in a key role as a bank regulator go deeper than whether or not the allegations are true.

"He was one of the people at the heart of the reckless lending in the mortgage market over the last few years.

"It was a bad appointment."

[David Guyatt]

Guess who appointed Crosby to the FSA?

http://www.timesonline.co.uk/tol/news/po...708234.ece

From Times Online
February 11, 2009

Top banker Sir James Crosby quits after whistleblower claims



Sir James Crosby at his home near Harrogate today hours before the resignation was announced

Philip Webster, Political Editor and David Byers

The deputy head of the country's financial watchdog resigned today after Gordon Brown withdrew confidence in him over damaging allegations from a bank whistleblower.

Sir James Crosby, the former HBOS chief executive, was revealed yesterday to have personally dismissed his former head of risk, Paul Moore, who raised fears that the bank was growing too fast.

Sir James was later appointed by Mr Brown as deputy chairman of the Financial Services Authority and was an adviser to the Treasury.

He resigned minutes after today's daily lobby briefing for journalists at which the Prime Minister's spokesman was asked whether he had full confidence in him. He would only answer: "These are serious allegations but they are contested allegations."

The City chief with close ties to Brown

The spokesman also revealed that the Treasury was in contact with the FSA this morning about the issue of Sir James’s handling of the Moore case.

The lack of a full endorsement by Mr Brown was the clearest sign that Sir James’s role was in jeopardy, and he resigned immediately afterwards.

Later, the Prime Minister told the Commons said that Sir James' resignation was the right step to take if he wished to defend himself against the allegations.

"It is right that we investigate serious allegations that are made about the banking system. These are serious but contested allegations," he said.

"In relation to Sir James Crosby, these are allegations that he will wish to defend so it is right that he has stepped down as vice chairman of the Financial Services Authority."

During a heated exchange at Prime Minister’s Questions, David Cameron demanded that Mr Brown admit that he had shown an error of judgment in appointing Sir James as deputy chairman of the FSA. Mr Brown pointed out that KPMG had found in an investigation in 2005 that the allegations were not substantiated.

The Tory leader hit back: “Sir James Crosby has had the decency to resign. Why can’t the Prime Minister have the decency to admit he has got something wrong?”

Mr Cameron said the Prime Minister had set up the regulatory system that had "failed”, and he pointed out that Mr Brown had given Sir James his knighthood.

The explosive allegations which led to Sir James's resignation were made when four former banking chiefs were grilled before the Treasury Select Committee yesterday. During the testimony, it was revealed that Mr Moore had said that his job at the time "felt a bit like being a man in a rowing boat trying to slow down an oil tanker".

Mr Moore, a former partner of KPMG who was head of group regulatory risk at HBOS between 2002 and 2005, accused the bank of "a total failure of all key aspects of corporate governance" and pointed the finger of blame firmly at Sir James, whom Mr Darling asked last April to review the problems in the mortgage market.

By dismissing him without good reason, HBOS broke in-house rules, he said, and he was replaced by Jo Dawson, a sales manager with less experience of risk management – a "personal" appointment by Sir James against the wishes of other directors.

The allegations came at a time when the banks' risk-taking has come in for huge criticism as Britain slides into recession.

***

http://business.timesonline.co.uk/tol/bu...702655.ece

From Times Online
February 10, 2009

HBOS whistleblower: statement of evidence

Times Online
Memorandum from Paul Moore, Ex-head of Group Regulatory Risk (GRR) at HBOS

Background and credentials

- I was head of Group Regulatory Risk (GRR) at HBOS between 2002 and 2005. I reported to the chief financial officer (CFO), Mike Ellis. I had formal responsibility for the bank’s policy and oversight of executive management’s compliance with Financial Services Authority (FSA) regulation.

- From an FSA perspective, I was the Approved Person at the relevant time for the Control Functions 10 (Compliance Oversight) and 11 (Anti Money-Laundering).

- Prior to joining HBOS, between 1995 and 2002, I was a Partner in KPMG’s Financial Sector Practice in London specialising in regulatory services where I advised quite a number of FTSE 100 clients on regulatory matters.

- I have been involved in UK Financial Sector regulation since it began in 1986. I am a Barrister by profession.

Summary of main points

- I believe that there are important general lessons to be learned from my personal experiences as a risk and compliance professional at HBOS and elsewhere that could assist the Committee and others in the public policy debate about what needs to be changed in the governance and regulatory system to help to ensure that the same risks are mitigated in the future.

In my view, as an experienced risk and compliance practitioner, the problem in finding the real cause of the banking crisis is being made more complex than it needs to be.

- I believe that we are missing the wood for the trees and that the key solutions to prevent such an event happening again are simpler than we think. In relation to policy changes, I make some short recommendations that the Committee may wish to consider in section 4 below.

- But let’s start with the cause and this fairly obvious proposition: even non-bankers with no “credit risk management” expertise, if asked (and I have asked a few myself), would have known that there must have been a very high risk if you lend money to people who have no jobs, no provable income and no assets.

If you lend that money to buy an asset which is worth the same or even less than the amount of the loan and secure that loan on the value of that asset purchased and, then, assume that asset will always to rise in value, you must be pretty much close to delusional? You simply don’t need to be an economic rocket scientist or mathematical financial risk management specialist to know this. You just need common sense. So why didn’t the experts know? Or did they but they carried on anyway because they were paid to do so or too frightened to speak up?

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