Lloyds Banking Group was found today to have failed in its compensation of customers who were hit by fraudsters in the Reading office of HBOS.
A report by Sir Ross Cranston assessing the bank’s customer review, which was set up to compensate victims of the HBOS Reading fraud, found the review “did not achieve the purpose of delivering fair and reasonable offers of compensation”.
Lloyds’ boss Antonio Horta-Osorio today apologised to customers who had been failed by the bank’s review.
“Our intention…was to deliver fair and reasonable outcomes for customers in a swift way that would be more generous than through the courts. Sir Ross has concluded that customers may not have received fair outcomes due to flaws in the review process. I am very sorry that this has happened.”
Six people, including former HBOS managers, are currently serving a combined 47 years in prison for the HBOS Reading fraud, in which they deliberately pushed small firms out of business before stripping their assets for personal gain between 2003 and 2007.
Cranston said: “I have concluded that it [the review] had serious shortcomings.
“The most serious shortcoming concerned the bank’s approach to assessing direct and consequential loss caused by the criminal misconduct. This part of the customer review, both in structure and in implementation, was neither fair nor reasonable.
“Other inconsistencies also resulted in unfairness, and the bank’s general failure to communicate in a sufficiently clear and transparent way caused confusion.
“I have reached the conclusion that the methodology and process of the customer review did not achieve the purpose of delivering fair and reasonable offers of compensation. My main recommendation is that customers’ claims to direct and consequential loss must be reassessed.”
Lloyds said it would offer all customers the option of an independent re-review of their cases.
It also said it would accept Cranston’s recommendations that it reconsiders cases where an individual sought inclusion in the review because they acted as a de facto director, reconsider eligibility for debt relief payments and provide the Treasury Committee with copies of settlement agreements.
The bank said it would be guided by the victims, the APPG on fair business banking, the SME alliance and other stakeholders on how best to implement the recommendations.
Cranston noted that the awards paid by the bank were generous, but still decided that the review overall was flawed.
The Financial Conduct Authority said: “We are disappointed that, after such a long period of time, the consequences of the HBOS Reading fraud for customers have not yet been properly remediated by LBG.”
The watchdog added: “These failings need to be addressed by LBG quickly. Sir Ross has made a number of recommendations to achieve that and we will ensure LBG implements them in full as soon as possible.
“We will also require LBG senior management to explain how and why the failings identified by Sir Ross occurred in the first place. We will consider what further action may be required in light of those answers.”
The former Chair of the APPG on fair business banking and the Conservative candidate for Thirsk and Malton, Kevin Hollinrake, said: “The report should herald a watershed moment for the regulation of UK banks. They can no longer be judge, jury and executioner in relation to their own conduct and the FCA can no longer be willing to countenance these internal redress schemes.
“The findings call into question the fairness and reasonableness of all past redress schemes established and overseen by the banks for SMEs…All those whose cases have been adjudicated by such schemes must now be offered the opportunity to have access to a new truly independent review. The new Business Banking Resolution Service offers a potentially suitable route, given the changes the APPG has long called for.”