The City watchdog in the UK is to hold an investigation into the events which led to the British government’s rescue of HBOS and Royal Bank of Scotland, it was reported today.
The inquiry by the Financial Services Authority (FSA) is expected to examine a range of issues, including the banks’ risk management processes and the conduct of directors prior to the first wave of bail-outs, the Sunday Telegraph newspaper said.
According to the newspaper, the FSA approached the “Big Four” audit firms last week to invite them to pitch for a mandate to assist with the investigation, which could commence within weeks.
Among areas of interest, the inquiry will reportedly examine whether sufficient information was made available to the boards of the banks and their shareholders.
Today’s report also said the FSA will look at the competence of directors in the periods leading up to the rights issues undertaken by Bradford & Bingley, HBOS and RBS during last year.
The inquiry will not address market-wide issues, such as banks’ capital requirements or governance, which have already been covered in a report on Britain’s financial system by FSA chairman Jonathan Turner.
The decision to open an inquiry does not imply that the watchdog believes bank directors were guilty of any criminal wrongdoing.
However, it is likely to intensify the pressure on those directors who served on the boards of institutions which later relied on Government support for their survival.
RBS needed an initial £20bn (€22.2bn) bail-out from the taxpayer, while competition rules were waived to enable Lloyds TSB to take over HBOS. The merged entity was obliged to take billions of pounds of state help.