The big story in today’s papers is not Peter Cummings’ evidence to the Parliamentary Commission in which he lambasted the Financial Services Authority (FSA), even though that got most of the headlines. The remarks of Andrew Bailey, chief executive designate of the Prudential Regulation Authority, that banks have become too big to prosecute are much more significant, but less noticed.
The PRA is one of the two regulatory agencies which will take over from the FSA, so Bailey’s words must carry some weight. In an interview with the Telegraph, Bailey said some banks had grown too large to prosecute. “It would be a very destabilising issue. It’s another version of too important to fail,” he said. “Because of the confidence issue with banks, a major criminal indictment, which we haven’t seen and I’m not saying we are going to see… this is not an ordinary criminal indictment.”
Could this be the reason why, although we have seen the prosecution of a ‘rogue trader’ at UBS and the arrest last week of three individual Libor dealers, the institutions which employed them have got off with regulatory fines, with no evidence heard in public and no chief executive standing in the dock? Only little people get sent to prison.
Yet it is hard to think that public confidence in banks could be shaken any further. Taking bankers to court might even increase public trust in the regulatory system.
The case against Cummings might have gone to trial if he had challenged the FSA’s ruling against him by judicial review. Then we would have seen the evidence given in public and tested under cross-examination. But, he said, his lack of funds to meet rising legal bills and his bad health convinced him to give up the fight. He has since had an operation and the Parliamentary Commission travelled to his home in Dumbarton rather than summoning him to London.
Yet Cummings is not exactly short of a bob or two. He may have waived a bonus of £1.3 million “earned” on profits made by HBOS in 2007, but he left the collapsed bank with a pay off of £702,080 and a pension of £369,000 a year. His lawyers managed to stave off the day of retribution from the FSA for three years after HBOS failed and to get the fine imposed on him by the regulator reduced from £1 million to £500,000 with one meeting and two telephone calls by challenging its legal basis.
Cummings said he found it sinister that the FSA had not pursued other directors of HBOS. Could it be that fear of getting tangled up with more teams of expensive lawyers persuaded the regulator not to go after other executives such as Sir James Crosby and Andy Hornby, the two CEOs, or the chairman Lord Stevenson?
It might have been better for the financial authority to hand its evidence to the Serious Fraud Office to see if there were grounds for criminal prosecution, or failing that for the Treasury to take civil actions for the recovery of at least a small part of the money the taxpayer had to stump up to prevent HBOS depositors losing their savings.