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Whistleblowing, Governance and Regulation Before the Financial Crisis: The Case of HBOS

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Abstract

Following the financial crisis of 2008, the Treasury Committee of the UK House of Commons undertook an inquiry into the lessons that might be learned from the banking crisis. Paul Moore, head of group regulatory risk at Halifax Bank of Scotland (HBOS) during 2002–2005, provided evidence of his experience of questioning HBOS policies which resulted in his dismissal from HBOS. The problems that surfaced at HBOS during the financial crisis were so serious that it was forced to merge with Lloyds TSB, another UK bank, to form the Lloyds Banking Group in which the government took a significant stake. Moore’s evidence to the Treasury Committee revealed that long before the financial crisis, he had raised major concerns with the management of HBOS and with the Financial Services Authority (FSA), the UK financial services regulator. Moore’s evidence led to the submission of further disclosures, replies and rejoinders as evidence to the Treasury Committee. Moore’s case is therefore of considerable interest to researchers of whistleblowing because it is a rare instance of high-level whistleblowing, the details of which subsequently entered the public domain. The information revealed in evidence to the Treasury Committee sheds light on the process of whistleblowing in the context of the governance and regulation of a major UK bank that subsequently had to be rescued by government intervention during the financial crisis. The paper makes a contribution to the wider literature on whistleblowing, and to a greater understanding of aspects of the financial crisis.

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Notes

  1. The Treasury Committee also produced other reports on the financial crisis, for example, on the failure of Northern Rock (Treasury Committee 2008a) and on banking reform (Treasury Committee 2008b).

  2. From 1 April 2013, the FSA was replaced by two separate regulatory authorities, the Prudential Regulation Authority (PRA) under the Bank of England, and an independent Financial Conduct Authority (FCA). The FSA website still exists but is no longer updated: http://www.fsa.gov.uk/.

  3. The FSA's Handbook is available at: http://www.fsa.gov.uk/handbook The high-level standards including PRIN, SYSC, APER, and FIT can be found at: https://fshandbook.info/FS/html/handbook/D3.

  4. The FSA's guidance on whistleblowing was contained in the FSA Handbook (SYSC, Chapter 18). The FSA's website had a dedicated whistleblowing section, including a phone line and email address: http://www.fsa.gov.uk/pages/Doing/Contact/Whistle/index.shtml.

  5. See FSA Handbook, APER, 2.1B.3: https://fshandbook.info/FS/html/handbook/APER/2/1B.

  6. This requirement was introduced in the 2003 post-Enron revision of the Code and has been retained through subsequent revisions of the Code up to the present (FRC 2012, para. C3.5).

  7. In what follows, for simplicity references to the two sequential volumes of written evidence from Treasury Committee (2009b, c) are given by page number and, where relevant, by paragraph (for example, Ev 434: 1.1).

  8. Moore also carried out the Money Laundering Reporting Function (CF11) but his whistleblowing concerns were not related to this role.

  9. The FSA further developed the ARROW framework (see FSA 2003, 2006) but its essentials remained as originally set out in FSA (2000).

  10. For simplicity referred to in this paper as the 'sales culture review'.

  11. Moore also states that the FSA were considering commissioning a skilled persons' report on sales and controls within retail but allowed the review to be undertaken by Moore's team (Ev 550: 43).

  12. In Moore's view a possible reason why the FSA did not investigate his allegations more thoroughly was because at the time Crosby was a non-executive director of the FSA (Ev 438: 3.23).

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Acknowledgments

The authors would like to acknowledge the constructive comments and suggestions received from the editor and the anonymous reviewers.

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  1. Norwich Business School, University of East Anglia, Norwich, NR4 7TJ, UK

    Ian P. Dewing & Peter O. Russell

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  1. Ian P. Dewing
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Correspondence to Peter O. Russell.

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Dewing, I.P., Russell, P.O. Whistleblowing, Governance and Regulation Before the Financial Crisis: The Case of HBOS. J Bus Ethics 134, 155–169 (2016). https://doi.org/10.1007/s10551-014-2407-1

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