Punters kept in dark on HBOS probe

SHAREHOLDERS and customers of HBOS are being left guessing over an investigation into the mortgage bank by regulator the Financial Services Authority.

The City watchdog has instigated a 'skilled persons report' under Section 166 of the Financial Services Act. The report is ultimately paid for by HBOS shareholders and customers. But neither the FSA nor the bank would divulge any information about what is being investigated.

The affair is particularly embarrassing for James Crosby, HBOS chief executive, who sits on the board of the regulator.

Initial reports suggested that the probe focused on the bank's life assurance subsidiary Clerical Medical and on its administration of Equitable Life business, which it took on in 2001.

But later indications were that HBOS's handling of Equitable policies is not under scrutiny.

Section 166 orders are used by the FSA to gather information on its controls or systems, and do not necessarily lead to enforcement action or adverse findings. There have been about 60 probes in the past two years, including one at troubled mutual Standard Life.

It is understood that the regulator's interest in HBOS may not be confined to its life assurance arm. The bank has a market value of £27bn and it is understood that its financial strength is not under question.