Former Bank of Scotland official in the spotlight after damning FSA report

Peter Cummings, the former head of Bank of Scotland’s corporate division, is thought to have been issued with a “seven-figure” fine by the Financial Services Authority (FSA).

Last month, a damning report from the City watchdog said the bank was guilty of “very serious financial misconduct” in the run-up to the collapse and £20 billion taxpayer-funded bailout of its parent company HBOS, which is now owned by Lloyds Banking Group.

In its interim report, the FSA said the division failed to “take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems” before HBOS’s demise in 2008.

The FSA’s report specifically did not name anyone but there was implied criticism of senior individuals.

This included former corporate division head Cummings, who is reported to have left the bank with a £660,000 pay-off and a £6 million pension pot.

According to a Sunday newspaper report, Cummings has been handed a “warning notice” and what is believed to be a seven-figure fine by the FSA. Warning notices are used by the FSA when it is planning to take action against an individual or firm, who can then appeal to the watchdog’s regulatory decisions committee.

A spokeswoman for Lloyds Banking Group, which is about 40 per cent owned by the taxpayer, declined to comment, saying it was a matter for the regulator. The FSA also declined to comment.

Last month’s interim report condemned Bank of Scotland for pursuing “an aggressive growth strategy that focused on high-risk, sub-investment grade lending” which left it highly vulnerable in the economic downturn.

However, the bank escaped a fine because the FSA said “levying a penalty on the enlarged group means the taxpayer would effectively pay twice for the same actions committed by the firm”.

It is understood that a fine would have surpassed the record £17.5m penalty given to Goldman Sachs for its failures. The publication of the report raised questions over whether former directors at the bank should face criminal investigations and calls for a public inquiry.

It followed a similarly scathing report into the collapse of Royal Bank of Scotland, which was bailed out to the tune of £45bn and is now 82 per cent owned by the taxpayer.

Yesterday, it was reported that former RBS chief executive Fred Goodwin had agreed with the FSA never to work in the City again.

The news came almost three months after Goodwin was stripped of his knighthood, which was awarded for services to banking.