Banking Crisis - Treasury Contents

Further memorandum from Paul Moore


  1.  I provided my initial evidence to the Treasury Select Committee (TSC) on Friday 6 February 2009 and additional more detailed evidence on 25 February 2009.

  2.  This further additional evidence is provided following correspondence with the Clerk of the Committee to deal with outstanding points that have not been covered in my earlier evidence or not in sufficient detail.

  3.  In particular, this evidence deals in more detail with the denials of my allegations by Gordon Brown, the FSA, Sir James Crosby, Lord Dennis Stevenson and Andy Hornby. It also deals in some detail with my response to the FSA's detailed statement dated 11 February.


  4.  In summary, I now say as follows:

    a. The relevant parties stated that my allegations were fully and properly investigated and claimed that they would provide further evidence, including the "so called independent" KPMG report which would prove that my allegations held no merit.

    b. The Prime Minister stated in the House of Commons:

    "However, it is right that when serious allegations are made, they are properly investigated. No doubt the Treasury Select Committee will want to look at them and no doubt the Conservative Party will want to wait to see how that investigation takes place."

    c. Despite the vocal and high profile denials of the parties, in fact, no further evidence other than the KPMG report has been received by the Committee.

    d. I stated on numerous occasions after the denials of my allegations that I had detailed additional evidence which would corroborate all my allegations and which would prove that the KPMG report would not withstand truly independent public scrutiny.

    e. I have now provided my detailed resume of my additional evidence which proves overwhelmingly the veracity of my original allegations and deals conclusively with the KPMG report. No-one now believes that this report was independent and my additional evidence demonstrates that it cannot be relied on in any way.

    f. Following the provision of my additional evidence over a full week and half ago, no additional evidence has been provided by any of the parties to rebut what I have said.

    g. The Treasury Select Committee should now accept my allegations and pay due regard to them in writing its report.

    h. The Treasury Select Committee should propose that the recommendations I made for policy changes (demonstrated by the allegations I made) should be considered by the appropriate fora including the FSA.

    i. Finally that, as my evidence demonstrates potential wrongdoing by the parties (see 18 below), the Treasury Select Committee should recommend in its report that such matters should be dealt with in the appropriate tribunals and by the appropriate authorities.


  5.  Lord Dennis Stevenson and Andy Hornby both denied my allegations in their interviews with the TSC and relied on the "KPMG Report".

  6.  When Sir James Crosby resigned as the Deputy Chairman of the FSA, Gordon Brown told Parliament [PMQs 11th Feb 09] in response to questions from David Cameron:

    "The allegations that were brought before the Treasury Select Committee were investigated by the independent KPMG in 2005. The allegations made by Mr Moore were found not to be substantiated. That was an independent review that was done by KPMG and reported to the Financial Services Authority. However, it is right that when serious allegations are made, they are properly investigated. No doubt the Treasury Select Committee will want to look at them and no doubt the Conservative Party will want to wait to see how that investigation takes place."

  7.  Gordon Brown also said:

    "It is right that we investigate serious allegations that are made about the banking system. These are serious but contested allegations. In relation to Sir James Crosby, these are allegations that he will wish to defend so it is right that he has stepped down as vice chairman of the Financial Services Authority."

  8.  The FSA issued a long statement on 11th February which included the following:

    "Having examined carefully the files relating to this issue, the FSA can confirm that specific allegations made by Paul Moore in December 2004 regarding the regulatory risk function at HBOS were fully investigated by KPMG and the FSA, which concluded that the changes made by HBOS were appropriate||In conclusion, the FSA confirms that the allegations made by Mr Moore were taken seriously, and were properly and professionally investigated."

  9.  I wish to tell the Committee that, apart from the obvious general point that I disagree with their conclusions, there are a number of specific parts of the FSA statement with which I am at odds.

    a. In particular I would say that, although the FSA has said that the specific allegations made by me were "properly and professionally investigated" and "that the changes made by HBOS were appropriate", the FSA themselves also say in the same statement that in June 2006 "there were still control issues" [at HBOS] and "the growth strategy of the group posed risks to the whole group and that these risks must be managed and mitigated".

    In these circumstances, how can they genuinely say that the changes made were appropriate?

    Also, when Lord Turner gave evidence to the TSC he said that Jo Dawson would not now have been approved by the FSA. Since there has been no change to the relevant rules relating to the approval of approved persons, Lord Turner's evidence amounts to an admission that the changes made by HBOS in 2004-05 were not appropriate.

    I also disagree with what the FSA said at the Committee that actions taken then were appropriate under the "philosophy" that applied then. The rules were the same.

    b. In their statement, the FSA say:

    "the FSA conducted a full risk assessment of HBOS (known as an ARROW assessment) in late 2002 which identified a need to strengthen the control infrastructure within the group".

    In fact, the Arrow assessment was conducted in 2003 and it did not cover the whole of HBOS. It covered all divisions apart from the Strategy and International division.

    c. In their statement, the FSA also say:

    "the FSA then conducted a further full risk assessment of the HBOS group to cover all of the group's business, formally recording its assessment in December 2004, the assessment was that the risk profile of the group had improved and that the group had made good progress in addressing the risks highlighted in February 2004, but that the group risk functions still needed to enhance their ability to influence the business, which we saw as a key challenge."

    They did not carry out a further full risk assessment in December 2004 and the risks were not highlighted in February 2004 but in December 2003.

    d. These simple errors relating to dates demonstrate a lack of care and attention at the FSA which is telling in itself.

    e. In their statement, the FSA say:

    "following that appointment, the then head of group regulatory risk, Paul Moore, was informed on 8 November that he would leave as part of this restructuring; he subsequently approached FSA to express concerns about HBOS and in particular about the suitability of the new appointee as the group risk director."

    This is not fully accurate. I approached the FSA with a long and detailed list of concerns including the allegation that I was dismissed by James Crosby for raising many issues of actual or potential breach of the FSA requirements (ie that I had a whistle blowing claim). In fact that was the post serious allegation of all. The issue of the new appointee was only one of the many issues raised. It was certainly not the most serious as the statement suggests. All the allegations were set out in a detailed Outline Case demanding a full and independent investigation. A full copy of this Outline case can be provided if required.

    f. In their statement, the FSA state:

    "the FSA satisfied itself about the skill and independence of the individuals selected to conduct the report for KPMG and about the scope of the report."

    The investigation did not cover all the areas that should have been covered and we complained about this at the time to HBOS. We also complained at the time about the conduct of the investigation. It is not clear that HBOS passed these criticisms on to the FSA as they should have. I have detailed documentary evidence of each of these complaints and have copied one letter in my earlier evidence.

    Secondly, on the so-called independence of the KPMG report, it is worth repeating that my solicitor and counsel have both written to the TSC and stated publicly that the report could not have been regarded as independent since KPMG were the auditors of HBOS. It follows that the FSA should not have regarded it as independent. In fact I am not sure anyone now really accepts that the report was independent.

    g. In their statement, the FSA say:

    "the FSA approved that individual only when it had received those results, which indicated that KPMG `did not believe that the evidence reviewed suggested that the candidate was not fit and proper', that `the process for the identification and assessment of candidates for the GRD position appeared appropriate', and that `the structure and reporting lines of Group Regulatory Risk are appropriate'

    Words such as "did not believe|suggested" and "|appeared appropriate" are hardly the most unequivocal.

    In any event, we sent the strongest possible rebuttal of all the points made in the KPMG report to HBOS within a short period of time of receiving the report. The Committee has seen a copy of this letter.

    An important question is whether HBOS sent this rebuttal letter to the FSA. Under the FSA Principles for Business they were required to do so. Even if they did not, why did the FSA not call me back to ask me about my view of the report? There is no doubt that they should have done so and not simply accepted the report "as read". That simply suggests that they wanted to close the file without properly completing the work of investigating all the serious allegations that were made. Perhaps this was convenient as James Crosby was a non executive director of the FSA at the time?

    h. In their statement, the FSA say:

    The FSA also followed up Mr Moore's concerns by meeting him independently and separately discussed the KPMG report directly with KPMG.

    This suggests that I met the FSA after the KPMH report. This is not true. They should have done so. In fact, I only met them before the report was commissioned from KPMG in December 2004. They should have called me in to find out my response to the report.

  10.  Sir James Crosby's resignation statement said:

    "Towards the end of my time as CEO of HBOS, as part of a wider restructuring of group functions the Risk Function was elevated to report direct to the CEO|||..As part of this I asked one of our risk managers, Paul Moore, to leave HBOS. ||At the time he made a series of allegations. |.These were independently and extensively investigated on behalf of the Board, the results of which they shared with the FSA. That investigation concluded that Mr Moore's allegations had no merit. ||Last autumn (on a BBC programme) and again yesterday (Tuesday) at the Treasury Select Committee he repeated substantially the same allegations. HBOS has reiterated its view that his allegations have no merit. |||. I am totally confident that there is no substance to any of the allegations."

  11.  Subsequently, I believe that Sir James Crosby said in a newspaper interview that he would bring forward detailed evidence to rebut my allegations. I believe he also told you this.

  12.  I issued a press release on the 11th February in which I said as follows. I repeated the same points a numerous occasions to the press and TV news programmes.

    "I have a significant body of detailed additional evidence which will corroborate what I said. I am confident that the `independent report' to which Sir James has referred will not bear up to any proper independent scrutiny. I described that report as `supposedly' independent in my evidence to the committee and I strongly stand behind that statement. No doubt I shall be given the opportunity at an appropriate time to disclose my evidence and demonstrate what I am saying is true.

  13.  Had all relevant parties not denied my allegations, I believe we could all have moved on to deal solely with the question of future policy construction. However, this has not happened and the Prime Minister himself has said that such serious allegations need to be investigated.

  14.  As you know, I have now provided my detailed resume of additional evidence to the Committee but Sir James Crosby, Lord Stevenson, Andy Hornby and the FSA have not provided any additional evidence other than the KPMG report which, as you know, I had already offered to send to the Committee before the week ending 13 February.

  15.  My additional evidence proves my allegations unequivocally and that the KPMG report bears no weight and was effectively a "whitewash".

  16.  I assume that as no further evidence to rebut my allegations has been received that this means that my allegations are now accepted and the TSC will be able to conclude that this is the case.

  17.  I believe the public interest demands this conclusion as well as my reputation. I have all the underlying documents which support the detailed resume of additional evidence if these are required. I have referred to these in my detailed resume.

  18.  I believe that my allegations raise important questions of potential wrong-doing / incompetence by the relevant parties which should be followed up.

  They raise questions as to the actions and omissions of the FSA. It should be noted that the Principles and rules which applied then are the same as now and that it is not appropriate to say that everything done then was permitted because the "philosophy was different".

  My allegations also raise questions of potential breach of company law fiduciary duties of the relevant HBOS directors as well as their potential breach of the FSA's Principles for Approved Persons, in particular:

    Statement of Principle 1

    An approved person must act with integrity in carrying out his controlled function.

    Statement of Principle 2

    An approved person must act with due skill, care and diligence in carrying out his controlled function.

    Statement of Principle 4

    An approved person must deal with the FSA and with other regulators in an open and cooperative way and must disclose appropriately any information of which the FSA would reasonably expect notice.

    Statement of Principle 5

    An approved person performing a significant influence function must take reasonable steps to ensure that the business of the firm for which he is responsible in his controlled function is organised so that it can be controlled effectively.

    Statement of Principle 6

    An approved person performing a significant influence function must exercise due skill, care and diligence in managing the business of the firm for which he is responsible in his controlled function.

    Statement of Principle 7

    An approved person performing a significant influence function must take reasonable steps to ensure that the business of the firm for which he is responsible in his controlled function complies with the relevant requirements and standards of the regulatory system.

  19.  My allegations also support the important recommendations for policy changes set out in my first memorandum of evidence which should be accepted by the Committee for further detailed consideration. My advisers and I are prepared to be involved in any discussions to this end. We have more detailed points which we believe would add value to further discussions.

  20.  If the TSC feels it is impossible under its terms of reference to achieve what Gordon Brown said in the House of Commons ie No doubt the Treasury Select Committee will want to look at them and no doubt the Conservative Party will want to wait to see how that investigation takes place", it may that it should recommend an investigation in another appropriate tribunal eg a judicial enquiry. If it does so, as I have already recommended in my evidence, I would suggest a broad ranging investigation into the banks as a whole not just HBOS.

8 March 2009

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