James Crosby, deputy chairman of Britain's Financial Services Authority (FSA), resigned on Wednesday for his role in sacking a risk manager during his days as chief executive of HBOS group.
Paul Moore, former head of regulatory risk at HBOS Group, alleged that Crosby, then first chief executive of the group, ignored his warning relating to risky business practices and sacked him for raising the risk concerns. The bank later had to be rescued by a government bailout.
Crosby said in his statement that HBOS had "extensively investigated" Paul Moore's allegations, concluding that they "had no merit."
"I nonetheless feel that the right course of action for the FSA is for me to resign from the FSA board, which I do with immediate effect," Crosby added.
Meanwhile, the FSA said: "The specific allegations made by Paul Moore in December 2004 regarding the regulatory risk function at HBOS were fully investigated by KPMG, which concluded that the changes made by HBOS were appropriate."
FSA chairman, Lord Turner, will write to the chancellor by the end of the day, setting out the details of that investigation, the FSA said.
Moore later released a statement in reaction to Crosby's resignation, saying: "I read with interest that Sir James continues to refute the allegations I made in my evidence to the Treasury Select Committee and I want all those interested to know that I continue to stand firmly and confidently behind what I have said."
Crosby led HBOS from 2001 to 2006 and was later appointed deputy chairman of the FSA.