Former top managers of HBOS could be banned from working in the City after a damning report into the near collapse of the bank seven years ago laid the blame squarely on its former board and senior directors.

At least 10 former executives – including chairman Lord Stevenson and chief executives Andy Hornby and James Crosby – could be subject to formal investigations after a decision not to pursue them before now was described as “materially flawed”.

The business secretary, Sajid Javid, has also been handed a copy of the report prepared by City regulators – to reconsider whether there are grounds to strike off any of the executives as directors of any type of business.

Others who could face investigation include former finance chief Mike Ellis, who is now chairman of Skipton building society, Colin Matthew, who ran the international division of HBOS, and Lindsay Mackay, who ran the treasury operation.

The report was seized upon by the chancellor, George Osborne, to justify sweeping changes to the regulatory regime and pin the blame on the Labour government’s approach to overseeing banks in the run-up to the 2008 crisis.

“This report, from one of our most respected regulators, clearly shows that the collapse of HBOS was caused by those running the bank and those regulating it. It demonstrates that the system of regulation created by the last Labour government failed,” said Osborne.

It is the second time an official investigation has laid blame for the near collapse of HBOS on its bosses. A previous parliamentary report said it was the result of a “colossal failure of management”.

The much-delayed 400-page report into the collapse of the country’s biggest mortgage lender and savings institution describes a boardroom that lacked banking experience and a management team which drove a culture of growth at all costs.

The end result of the bank’s ill-judged lending spree was that HBOS faced bad debts of £45bn – significantly more than the £38bn in losses racked up by the far larger Royal Bank of Scotland.

The bank – which had to be rescued by Lloyds TSB and then bailed out with £20bn of taxpayers’ money during the height of the crisis – “failed to set an appropriate strategy, and also failed to challenge a flawed business model that placed inappropriate reliance on continuous growth without due regard to the risks involved”.

At one point in 2008, when HBOS was facing meltdown, it was reliant on a £25bn Bank of England lifeline to stay in business.

The now defunct City regulator, the Financial Services Authority, was also criticised, both for its approach to overseeing banks in the run-up to the crisis and for the way it decided to only punish one of HBOS executives, Peter Cummings, in the wake of its near collapse.

But the report, first scheduled for publication two years ago and which cost £7m to produce, concluded: “Ultimate responsibility for the failure of HBOS rests with its board.”

It was published alongside a highly critical assessment of the FSA’s decision to investigate only Cummings, who ran the corporate division, which also revealed there were grounds for an investigation into Hornby, now the chief operating officer of Gala Coral.



There is no formal record of why the FSA targeted only on Cummings, who was banned and fined £500,000 in 2012. He complained of “tokenism” at the time.

Andrew Green, the QC who conducted the review of the FSA’s decisions, said it was plainly in the public interest that the decision not to investigate any other former HBOS bosses was reconsidered.

A decision on whether to heed his advice has not yet been taken. Regulators will conduct a review into whether enforcement action should be taken “as early as possible next year”.

The Green report quotes Clive Adamson, the former FSA director of enforcement, saying that “the people most culpable were let off”. In his view those people were Hornby and Stevenson.

While Green has left the door open for a wide investigation into former executives, he concludes that FSA was right not to investigate Crosby, who gave up his knighthood in 2013 along with 30% of his pension.

Green’s report also reveals a breakdown in communication between the City watchdog’s enforcement division, then run by Margaret Cole, and its chief executive Sir Hector Sants, who was not told that there were grounds for a full investigation into Hornby.

Sants’ predecessors, chairman Sir Callum McCarthy and chief executive John Tiner, are also criticised for their approach in the run-up to 2008 crisis. “The FSA’s approach was too trusting of firms’ management and insufficiently challenging,” the report said.

The report acknowledges that the regulatory regime at the time was one of “light touch” and Andrew Bailey, head of the Prudential Regulation Authority, described HBOS and the FSA as “creatures of the time”.

“HBOS was at root a simple bank that nonetheless managed to a create a big problem,” Bailey said. He says the bank was not one that embarked on risky trading activities but overly focused on growth – which is denied by both Crosby and Hornby.

Hornby refused to comment but his employer Gala Coral, the betting business, stood behind him. Skipton building society also backed Ellis, saying he had the “wholehearted confidence of the board”.

In a statement issued by law firm Ashursts, eight former directors rejected the suggestion that an investigation into their conduct was warranted. The eight included Stevenson, who the report said bore “responsibility individually and, collectively and as board member for the failings of the board”.

The former directors said they “disagree with a number of the conclusions of this report, particularly the way in which it downplays the unforeseen and unforeseeable effect of the financial crisis on HBOS”.

But Andrew Tyrie, the Conservative MP who chairs the Treasury select committee, urged the regulators to press on with investigations: “Better late than never … The FCA and PRA should get on with this immediately.”

He also called for further action on auditors KPMG, after the Financial Reporting Council, which polices the accountancy profession, said there were no grounds for an investigation. “The audit process was an important part of the story of HBOS’s failure,” said Tyrie.