Bonus for watchdog that failed the Rock

May 7 2008 by William Green, The Journal

THE Financial Services Authority has sparked outrage for paying more than £13m in staff bonuses despite failures over Northern Rock.

Performance-related payments totalling £13.9m were paid to staff at the City watchdog in 2007-08 for what chief executive Hector Sants said reflected “excellent” work across the organisation.

But the Financial Services Authority (FSA) refused to say if bonuses were paid to staff overseeing the Rock.

The news sparked anger because the watchdog has admitted serious failures in monitoring Northern Rock before it ran into difficulty last September.

Tyne Bridge MP David Clelland said: “The FSA seems to be mirroring the people they are trying to scrutinise. It just sounds like big City bonuses. Given the gaffes over Northern Rock, I don’t see how it can be justified.”

Details emerged after the Commons Treasury committee yesterday grilled FSA chiefs over the Rock crisis. Committee member Michael Fallon asked FSA chairman Sir Callum McCarthy why none of his 2,600 staff were fired and some shuffled sideways. Sir Callum said: “None has been dismissed. Of the people who were responsible for supervision of Northern Rock at the relevant period none is now involved in supervision. And a number of them have left the FSA.”

He confirmed all FSA staff could get bonuses, while Mr Sants said the majority of senior management got performance payments – despite an internal report highlighting failures in their actions over Northern Rock.

But Mr Sants insisted four out of five managers in the “chain” overseeing Northern Rock were no longer with the FSA and promised to improve regulation.

A FSA spokeswoman later said bonuses depended on performance, with payments potentially reaching 35% of salary, although nobody achieved that last year.

The system was designed to encourage more people to work at the FSA with the bonuses very small in comparison to those in the financial services industry.

She added bonuses totalled £13.9m last year compared to £14.4m in the previous 12 months, which in both periods was equal to 12.3% of overall wages.

The revelations came as the FSA renewed calls for greater power to combat market abuse and stop another Northern Rock-style crisis.

The Treasury Committee has called for a beefed up office of the deputy governor at the Bank of England to have a greater say in rescuing failing banks, although the FSA wants sole responsibility to prevent confusion in decision making.

Committee chairman John McFall said it was up to the FSA to give MPs and Parliament confidence in its ability to use any new powers after it “screwed up” Northern Rock.

Sir Callum said: “You should be in no doubt about the determination of the board to learn from what has gone wrong and put it right.”