FSA ditches internal review of its 'effectiveness'

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The Independent Online

The Financial Services Authority has cancelled the annual review of its own effectiveness, despite criticisms of its failure to prevent the near collapse of banks including HBOS and Bradford & Bingley.

The decision was taken at a board meeting chaired by Lord Turner, who last week presented his review of banking regulation, including reforms of the FSA.

The effectiveness of the board and its main committees have been reviewed every year. External consultants are employed every three years while an in-house assessment is conducted in other years. Most reviews have found deficiencies in the regulator's working or the quality of board decisions.

The review is required by the Combined Code on corporate governance and an explanation of the decision not to hold one this year will have to appear in the FSA's annual accounts to be published in June. The minutes of the board meeting, held at the watchdog's Canary Wharf headquarters, state: "The board agreed that the FSA would not undertake a review of effectiveness of the board and its committees for the year 2008-09".

It was only the third regular board meeting since Lord Turner took over the FSA's chairmanship from Sir Callum McCarthy and a spokesman sai: "As last year was a year of transition for chairs it was decided another review now would add little".

The 2007-08 review was conducted by consultants from the Institute of Chartered Secretaries & Administrators who held meetings with directors to discuss the processes of the board plus the risk and audit committees as well as the non-executives. Directors subsequently agreed an action plan but it is thought that not all proposals had been implemented before Sir Callum left. "The board felt that some of the recommendations were best left to the incoming chairman," admitted the spokesman.

For internal reviews, the non-executives assess the performance of the chairman in consultation with Treasury officials and he reviews the effectiveness of the non-executives, using questionnaires and interviews.

The last review concluded: "there remained some areas for further development" and the previous one: "There are areas for improvement."