James Crosby, the UK Financial Services Authority's (FSA) deputy chairman, has resigned. His departure comes after an accusation that he and other directors at his former employer HBOS ignored warnings the company was taking excessive risks from its ex-head of group regulatory risk, Paul Moore, was finally made public.
HBOS has been among the UK banks most affected by the credit crisis. It received a multi-billion government capital injection in October last year, and was subsequently taken over by Lloyds TSB.
Moore claims he was dismissed in 2005 by Crosby, who was the chief executive of the bank at the time. Moore was responsible for HBOS's policy and oversight of executive management's compliance with FSA regulations, reporting to the chief financial officer (CFO), Mike Ellis.
In a written memo submitted to the Treasury committee in advance of yesterday's parliament hearing on the banking crisis, Moore claimed HBOS's leaders had not listened to the risk management team when large risks in the bank's business model were pointed out to them.
"I told the board they ought to slow down but was prevented from having this properly minuted by the CFO. I told them their sales culture was significantly out of balance with their systems and controls," wrote Moore. "The problem was that a reduced margin strategy is predicated on the need for improvements in cost control and at the same time massive increases in sales. It is now clear that this disastrous 'grow at all costs' strategy was what led to HBOS's downfall and humiliating demise by the forced acquisition of Lloyds."
Crosby explained in a statement that towards the end of his time as chief executive of HBOS, the risk function was elevated to report directly to him. After assuming this additional duty, he asked Moore to leave the firm. Moore sued HBOS for unfair dismissal and compensation, in a case that was settled out of court.
In a statement, the FSA confirmed the allegations Moore made in December 2004 regarding the regulatory risk function at HBOS were fully investigated by Dutch auditing firm KPMG, which concluded that the changes made by HBOS were appropriate. The regulator also said the chairman of the FSA will write to the Chancellor of the Exchequer, Alistair Darling, by the end of today, setting out the details.
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