FSA admits Northern Rock shortcomings

by Gill Montia

Story link: FSA admits Northern Rock shortcomings

The Financial Services Authority (FSA) has today published a report in which it admits to certain shortcomings in the regulation of Northern Rock.

Four key areas have been identified as significant in the process which led to the mortgage bank having to seek emergency funding from the Bank of England.

These include a lack of sufficient supervisory engagement with the bank and the failure of the FSA supervisory team to address the vulnerability of the bank’s business plan, as market conditions changed.

The report also highlights a lack of oversight and review by FSA line management of the quality, intensity and rigour of the supervision of the bank, and the inadequacy of resources for direct supervision.

The regulator is overhauling its procedures as a result of the weaknesses identified.

A new group of supervisory specialists will regularly review the supervision of all high-impact financial businesses.

At the same time, the numbers of supervisory staff engaged with high-impact firms will be increased and a minimum level of staffing will be set for each firm.

Hector Sants, Chief Executive of the FSA, says: “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, although whether that would have affected the outcome in this case is impossible to judge.”