Lessons to be learned from Rock says FSA
Mar 27 2008 by William Green, The Journal
THE Financial Services Authority yesterday promised to “learn lessons” from failings over Northern Rock.
Chief executive Hector Sants said: “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.”
But he insisted it was “impossible to judge” if another response would have affected the outcome as the Financial Services Authority stressed primary responsibility for Northern Rock lay with its bosses.
Mr Sants said a willingness to learn lessons was central to giving the financial services industry and consumers confidence in the FSA, but warned not all risk could be removed.
The FSA will now recruit about 100 extra staff to boost its risk assessment and supervisory capability as it aims to complete an “enhancement” programme by December.
The FSA said it would seek to give greater priority to the task of supervising individual companies, with more involvement of senior managers in the process.
The bank was forced to go to the Bank of England for emergency funding last autumn when its funding lines dried up amid the credit crunch. Now the FSA will focus on liquidity and capital as part of a supervisory approach to high-impact firms.
FSA directors overseeing such companies will meet their chief executives and executive teams once a year to discuss strategic issues and produce an annual review, alongside regular discussions with key contacts at institutions.
Any weakness must be discussed with companies or their boards, with any reluctance to engage being challenged.
FSA heads of departments will be required formally to review supervision of high-impact firms every six months.
Institutions will have to improve stress testing and have a “plausible” contingency funding plan.
The FSA will give more consideration to extreme but plausible scenarios on liquidity and other risks.
Training will be “significantly enhanced” and the FSA plans to improve co-ordination with the Bank of England and international regulators.
The FSA will meet auditors of firms at least once a year.
And there will be an increased focus on the competence of firms’ senior management.
The changes will be implemented within the £323m budget for 2008-09, raised through fees on FSA regulated institutions, as the watchdog aims to be flexible to changing demands – although that could mean cuts in other areas.
