UK: FSA promotes disciplinary board
The Financial Services Authority, the UK's financial services regulator, has levied another huge fine -
- this time GBP750,000 against Bank of Scotland for "failure of its PEP/ISA Department to administer customers funds appropriately. This put 30,000 PEP and ISA customers at risk of losing money and also exposed BoS to increased risks of fraud."
The FSA found that the bank did not know how much money it held for customers for a period of more than eighteen months from August 1999.The FSA says "The problems were caused by systemic failings in controls and inadequate staff training. BoS have now addressed these weaknesses and are paying compensation where this is due."
Several months ago, the chairman of the FSA, Sir Howard Davies, emphasised the importance of maintaining proper back office, saying that cost cutting in that area would be a mistake. The FSA's Director of Enforcement, Andrew Proctor, echoed this saying "In the current difficult climate some firms may be tempted to cut back on investment in back office systems - this would be extremely short-sighted." The report does, however, say that BoS has undertaken corrective action.
The FSA has often said that it intends to use publicity as a weapon and aside from the above, the FSA's announcement of the fine marks a new departure for the regulator. Until recently, disciplinary issues were found in the press release section of the website - and that section was not much visited by the public at large. However, a new "news" column on the front page of its website is ugly (for all its navigational faults, the FSA's website has usually been elegantly designed) and dominant so it cannot be missed. The lead story is the disciplinary action.
This move clearly increases the risk that those disciplined will lose potential business as its reputation is affected by the news.
Readers should note that Bank of Scotland is not the same company as The Royal Bank of Scotland, which was fined a similar amount recently for failure to implement adequate counter-money laundering controls.
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