FSA admits unacceptable failings over Northern Rock
The Financial Services Authority is to overhaul its banking supervision procedures after admitting there were major failings in its dealings with Northern Rock, though it claims it may not have been able to save the collapsed bank even if supervision had been up to scratch.
"It is clear from the thorough review carried out by the Internal Audit team that our supervision of Northern Rock in the period leading up to the market instability of late last summer was not carried out to a standard that is acceptable," Hector Sants, Chief Executive of the FSA, said.
The review found the FSA failed to follow up "rigorously" with Northern Rock's management on its vulnerability to the changing market conditions while there was also a lack of adequate oversight and reviews of the quality, intensity and rigour of the firm's supervision.
Inadequate specific resources were also devoted to directly supervising the firm and there was also a a failure to ensure that ensuring that all available risk information was properly utilised to inform its supervisory actions.
(Article continues below)Advertisement
However, the review added it considered the poor performance over Northern Rock was at the "extreme end of the spectrum within the firms reviewed in respect of these failings and that its supervision did not reflect the general practice of supervision of high-impact firms at the FSA."
In response, the FSA has proposed a major beefing up of its procedures including a new group of supervisory specialists who will regularly review all so-called high-impact firms such as Northern Rock.
Other proposals include more staff assigned to specific firms, with a minimum for each firm, more training, more FSA senior management involvement in supervision and an emphasis on assessing liquidity and the competence of firms' senior management.
