FSA to expose own failings over Rock crisis

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The Independent Online

The Financial Services Authority (FSA) will publish the long-awaited findings of its internal investigation into the Northern Rock crisis today, shining the light on its failings and identifying ways to ensure such a situation cannot take place again.

The report is expected to highlight several areas of failure within the FSA's regulatory processes, and will call for as many as 100 additional staff to be added to its workforce to help it monitor risks in the future.

Last week, the regulator parted company with the head of its retail division, Clive Briault, who was one of the FSA directors who had responsibility for supervising Northern Rock. Six of the seven-strong team responsible for overseeing the Newcastle-based bank have now left since the crisis erupted last September. Mr Briault's departure also prompted the second management overhaul since the start of the year – including a move to pour more resources into risk analysis and supervision.

David Buik, a partner at BGC Partners, said with most of the original Northern Rock team now gone, today's report is likely to be highly critical of the former regulatory systems in place. "It would not be unreasonable to suppose that the FSA will be self-critical about the effectiveness of its policing of this bank's balance sheet," he said. "The FSA is well run, but could probably use more very talented people. They are in competition with investment banks for top compliance officers."

In January, the Treasury Select Committee accused the FSA of "systematic failure of duty", for failing to spot what it described as a "reckless" business model operating at Northern Rock. The lender's extreme dependence for its funding on the wholesale money markets, rather than on depositors, proved catastrophic when the credit crunch hit last summer, leading to the first run on a British bank for more than a century. Publishing its report at the time, the committee's chairman John McFall said: "The FSA did not supervise Northern Rock properly. Its procedures were inadequate to supervise a bank whose business grew so rapidly."

Vince Cable, the Liberal Democrats' Treasury spokesman, has repeatedly questioned whether the FSA is up to the job of preventing future banking crises, and the British Bankers' Association has expressed doubts about the regulator being able to recruit the necessary talent to safeguard the industry.