FSA admits 'failure' in supervision of Northern Rock

26 March 2008 / by Rachael Stiles
The Financial Services authority has admitted it failed Northern Rock by not providing sufficient supervision, but says that even if it had done its job more effectively, the outcome would not have necessarily been any different.

The FSA's report, released today, outlines its primary failings in dealing with the supervision of Northern Rock and how this could be improved, but it also reiterated that "the boards and managements of regulated firms carry the primary responsibility for ensuring their institutions' financial soundness".

The City regulator named the main gaps in its performance as being a lack of "sufficient supervisory engagement" with the bank, a lack of "adequate oversight and review" in monitoring the quality, rigour and intensity of the supervision, an "inadequate" specific supervisory resource, and a "lack of intensity" in ensuring that all available information regarding the level of risk the bank was facing is used to the best advantage.

Increasing the number of staff assigned to monitor each institution, upgrading the current training and competency framework and putting a higher emphasis on liquidity, are all among the measures which the FSA has said it will implement to improve its efficiency and prevent similar situations arising in the future.

Hector Sants, Chief Executive of the FSA, said:"This programme is the response of the management of the FSA to the weaknesses identified in the particular case of the supervision of Northern Rock. 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."

He concluded: "However, together with the proposed reform of the insolvency regime for banks - and an improved deposit protection scheme - it creates a platform to strengthen financial stability and better protect the interests of consumers."

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