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FSA admits RDR focus had role in RBS debacle

The FSA has admitted that it played a big role in Royal Bank of Scotland’s near demise in October 2008 and gave too much attention to the RDR and treating customers fairly at the expense of supervising banks.

In a report into the bank’s failings before its £45.5bn injection of state aid, chairman Adair Turner says the regulator did not sufficiently challenge some of RBS’s poor management decisions.

Turner says: “The FSA had developed a philosophy and approach to the supervision of high-impact firms and in particular major banks, which resulted in insufficient challenge to Royal Bank of Scotland’s poor decisions.

“The supervisory approach entailed inadequate focus on the core prudential issues of capital, liquidity and asset quality and insufficient willingness to challenge management judgements and risk assessments.”

The FSA says its focus on the RDR and TCF in the run-up to the crisis meant prudential regulation was sometimes “accorded low priority”.

The report identifies a number of failings at RBS which led to it nearly collapsing, including poor capital res-erves, an over-reliance on short-term wholesale funding, substantial losses from credit trading activities and concerns about the quality of the bank’s underlying assets.

RBS’s botched takeover of ABN AMRO, in which it conducted inadequate due diligence before the acquisition, was also cited as a contributing factor to the bank’s near collapse as well as its vulnerability to the banking crisis.

Facts and Figures Financial Planners managing director Simon Webster says: “This report demonstrates what the professional adviser community has known all along, which is the regulator has been so busy focusing on things that do not really matter that it has missed the big picture completely.

“As a result of that monstrous incompetence, each taxpayer has been forced to shell out thousands of pounds.”

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Comments

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  1. A bit of honesty just for a change from our supposedly “open and transparent regulator” wouldn’t go amiss, as in admitting that a large part of the reason that the FSA turned a blind eye to what the banks were getting up to is that it was told to by the Treasury.

    To do so, though, would cause a few problems, not least by exposing the lie, regularly trotted out by Mark Hoban, that the FSA (fsa.gov.uk) is independent from government.

    Also, how about an apology from Messrs Turner and Sants for the disastrous consequences of their lack of action?

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