On March 9, the UK Financial Services Authority (FSA) announced a public censure of Bank of Scotland plc in respect of failings of the bank’s corporate division relating to sub-investment grade lending.

The FSA found that between January 2006 and December 2008, the bank had failed to comply with Principle 3 of the FSA’s Principles for Businesses (adequate risk management systems). The bank’s systems and controls were not appropriate to the high level of risk that its corporate division was taking as it pursued an aggressive growth strategy, focusing on high-risk sub-investment grade lending. The corporate division continued to pursue this strategy despite the worsening of market conditions in 2007. Rather than re-evaluating its business as conditions worsened, the division set out to increase its market share as other lenders began pulling out of the relevant market. The FSA found the following specific deficiencies...