Memorandum from Paul Moore, Ex-head of Group Regulatory Risk (GRR) at HBOS

Background and credentials

- I was head of Group Regulatory Risk (GRR) at HBOS between 2002 and 2005. I reported to the chief financial officer (CFO), Mike Ellis. I had formal responsibility for the bank’s policy and oversight of executive management’s compliance with Financial Services Authority (FSA) regulation.

- From an FSA perspective, I was the Approved Person at the relevant time for the Control Functions 10 (Compliance Oversight) and 11 (Anti Money-Laundering).

- Prior to joining HBOS, between 1995 and 2002, I was a Partner in KPMG’s Financial Sector Practice in London specialising in regulatory services where I advised quite a number of FTSE 100 clients on regulatory matters.

- I have been involved in UK Financial Sector regulation since it began in 1986. I am a Barrister by profession.

Summary of main points

- I believe that there are important general lessons to be learned from my personal experiences as a risk and compliance professional at HBOS and elsewhere that could assist the Committee and others in the public policy debate about what needs to be changed in the governance and regulatory system to help to ensure that the same risks are mitigated in the future.

In my view, as an experienced risk and compliance practitioner, the problem in finding the real cause of the banking crisis is being made more complex than it needs to be.

- I believe that we are missing the wood for the trees and that the key solutions to prevent such an event happening again are simpler than we think. In relation to policy changes, I make some short recommendations that the Committee may wish to consider in section 4 below.

- But let’s start with the cause and this fairly obvious proposition: even non-bankers with no “credit risk management” expertise, if asked (and I have asked a few myself), would have known that there must have been a very high risk if you lend money to people who have no jobs, no provable income and no assets.

If you lend that money to buy an asset which is worth the same or even less than the amount of the loan and secure that loan on the value of that asset purchased and, then, assume that asset will always to rise in value, you must be pretty much close to delusional? You simply don’t need to be an economic rocket scientist or mathematical financial risk management specialist to know this. You just need common sense. So why didn’t the experts know? Or did they but they carried on anyway because they were paid to do so or too frightened to speak up?

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