Market crisis cases continue to be a central focus for
enforcement officials. The new DOJ task force christened in the President's
State of the Union address is hard at work trying to determine the origins of
the market crisis and who, if anyone, might be held accountable. The SEC
reportedly is in settlement talks with a number of institutions. And, in the
U.K. the FSA recently filed a report censuring a major financial institution
stemming from its failures during the crisis that contributed to its taxpayer
funded bail out. To date, the cases are largely consistent, focusing generally
on institutional shortcoming and failures and civil charges.
The FSA's action is against HBCS Group and its primary
subsidiary, the Bank of Scotland PLC. During the period from January 2006
through December 2008 the FSA concluded that Bank of Scotland:
The Bank had serious control deficiencies which allowed
the pursuit of the inappropriate strategy. Those included:
As the market crisis continued to unfold, and the stress
in the bank's transactions became apparent, it was "slow" to move the
transactions to the High Risk area despite a significant risk to the firm's
capital. This failure meant that the extent of the risk was not fully known to
the Group's board or auditors. Ultimately as a result of these failures the
government and the taxpayers were forced to bail out the Bank.
The Bank failed to comply with FSA Principles of Business
3 the FSA found. That principle specifies that the firm take reasonable care to
organize and control its affairs responsibly and effectively with adequate risk
management systems. While ordinarily a financial penalty would be imposed, in
this case the Bank was only censured. The FSA explained that it took this step
because "levying a penalty on the enlarged Group means the taxpayer would
effectively pay twice for the same actions committed by the firm."
For more cutting edge commentary on
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