The UK regulator said it warned the bank about risk controls 2 years before a regulatory risk boss

The Financial Services Authority (FSA) said that it raised concerns about internal risk controls at HBOS as long ago as 2002, two years before one of the banks senior risk officers brought his fears to the attention of the board.

The FSA said it conducted a full risk assessment of HBOS in late 2002 which identified a need to strengthen the control infrastructure within the group. The regulator also said that it commissioned an auditors report on the HBOS risk management framework, which revealed a need for improvements in the ‘risk management environment’.

In December 2004 Paul Moore, former head of regulatory risk at HBOS, warned his bosses about problems in the regulatory risk function. In the same month the regulator found that changes made by HBOS were appropriate but that the group risk functions still needed to ‘enhance their ability to influence the business’.

Further, the regulator said it wrote to HBOS in June 2006 with a further risk assessment making it clear that whilst the group had made progress, there were still control issues. The letter said: ‘The growth strategy of the group posed risks and that these risks must be managed and mitigated.’

HBOS was taken over by the Lloyds Banking Group in a government backed rescue after shareholders lost confidence in its ability to survive the credit crisis.