BoE to hold HSBC bosses' 'feet to the fire' in bank's transformation

By Huw Jones

LONDON (Reuters) - HSBC's top two bosses will be held responsible for transforming it into a simpler institution, Bank of England Deputy Governor Andrew Bailey said on Wednesday, as Europe's biggest bank tries to clean up after a Swiss tax scandal.

HSBC has admitted failings in compliance and controls in its Swiss private bank after media reports said it helped wealthy customers conceal millions of dollars of assets in a period up to 2007. It adds to a long list of banking scandals that have emerged since the financial crisis, including several at HSBC.

Last week, HSBC Chairman Douglas Flint told a panel of lawmakers the bank was halfway through a transformation to make the bank simpler and to create central control.

Bailey, Britain's top banking supervisor, told the same panel of lawmakers on Wednesday he was holding Flint and HSBC Chief Executive Stuart Gulliver "personally responsible" for the transformation, which he described as a "work in progress".

"I am going to hold their feet to the fire, noses to the grindstone," Bailey, who heads the BoE's Prudential Regulation Authority (PRA), told parliament's Treasury Select Committee.

The bank either shrinks, reorganises or disposes parts of the business that threaten the PRA's objectives, Bailey said.

Flint told the committee last week that he and Gulliver shared collective responsibility for failings in Switzerland but that the people most responsible were local management.

Pressed by lawmakers on Wednesday to say who was ultimately responsible, Bailey replied: "Senior management can't and couldn't delegate responsibility."

Acquisitions by HSBC from the late 1990s onwards was in "some sense quite contrary" to the bank's then federal structure and culture, he said, and the seeds of recent problems, such as the Swiss tax allegations, were sown during that period.

Sandra Boss, an external PRA board member, said HSBC's transformation plan would take years, a view echoed by fellow external board member, Charles Randell.

"It's a big oil tanker and it's one that takes a while to turn," Randell told the lawmakers.

Randell said the PRA was in contact with other agencies about the Swiss tax allegations to make sure it was dealt with "expeditiously".

Bailey also said the PRA would publish towards the end of this month the scenarios that will be used in next year's industry-wide banks' stress tests, which will gauge whether British banks have sufficient core capital to withstand shocks to the system.

It will contain theoretical global shocks and how they pass into Britain after criticisms of this year's test that it focused too much on domestic shocks such as a housing market crash.

(Reporting by Huw Jones, editing by David Evans and Susan Thomas)