FSA's mea culpa over Rock

The Financial Services Authority (FSA) has been forced to acknowledge that it severely mismanaged the Northern Rock crisis last year, after an internal investigation found significant shortcomings within the City regulator.

The bank, which has now been nationalised by the Government, was given at least £25bn in emergency funding by the Treasury after failing to balance its books.

But an inquiry into the regulation of the bank found a series of failings that could undermine the regulator's reputation.

According to the review, the FSA failed adequately to supervise and engage with the bank, especially given that Nothern Rock's business model was vulnerable to the changing market conditions last summer – the ultimate catalyst for the crisis. This led to customers withdrawing their money, and the appeal for emergency funds.

In response to the review, Hector Sants, chief executive of the FSA, said: "It is clear 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."

The FSA now has plans to recruit 100 extra staff to boost its risk-assessment and supervisory roles.

While the regulator has owned up to its mishandling of the Northern Rock affair, Clive Briault is still licking his wounds. As managing director of the FSA's retail banking division, he was directly in charge of supervising the bank at the time of its collapse, and recently became the most senior member of the FSA to have parted company with the regulator following to the scandal. Mr Briault did, however, leave the FSA with a reported payoff of around £370,000.