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FSA fines and bans former Northern Rock directors

The FSA has fined former Northern Rock deputy chief executive David Baker £504,000 and former managing credit director Richard Barclay £140,000 for misreporting mortgage arrears figures.

Baker has also been prohibited from performing any function in relation to any regulated activity and Barclay has been prohibited from performing any significant influence function at an FSA-regulated firm.

As deputy chief executive, between January 2004 and March 2008, Baker was responsible for internal and external reporting.

Despite becoming aware in January 2007 that there were 1,917 loans omitted from the mortgage arrears figures, Baker failed to escalate the information internally and agreed a course of action which resulted in the loans not being reported, the FSA says.

Baker also made misleading statements regarding these impaired loans to external stakeholders, including market analysts, quoting inaccurate figures.

If the 1,917 loans had been reported as being in arrears, the figures would have increased by approximately 50 per cent while if the loans had been reported as in possession, the number would have increased from 662 to 2,579 cases.  

As managing credit director, Barclay was directly responsible for the provision of accurate management information concerning loan arrears and property possessions.

The FSA says he knew the firm’s arrears position enabled senior management within Northern Rock, analysts and the FSA to form a view of the bank’s asset quality but failed to ensure that the management information reported was accurate despite warning signs at an early stage.

The FSA says that although it is not possible to calculate the exact extent of this misreporting, if the correct figure had been reported, the arrears figures would have been significantly worse and closer to the Council of Mortgage Lenders average over an extended period of time.

FSA director of enforcement and financial crime Margaret Cole (pictured) says: “Baker and Barclay both failed to meet the standards we require of senior individuals within FSA-regulated firms. They both held senior positions of trust within the firm but they provided inaccurate information to the Northern Rock board and to the market.

“The fines we have imposed on them leave no doubt that we will take action against individuals who either fail to act with integrity or who fail to perform their roles to a high standard – this is a loud and clear message that we are serious about taking action against senior directors where they step over the line.”

Both Baker and Barclay admitted their misconduct at an early stage and co-operated fully with the FSA. As such, the pair received a 30 per cent discount. Without this discount, Baker would have been fined £720,000. Barclay’s fine was reduced on the grounds of hardship. His original fine would have been £300,000.

Baker says his decision was taken to resolve and not hide the reporting error.

He says: “I decided to give the Debt Management Unit six months to rectify the misreporting. My decision, and its timeframe, was made with the best of intentions. I now recognise that this decision, taken to resolve and not hide, the reporting error, did not make these loans immediately transparent. I made an error of judgment and I regret it.

“I accept full responsibility for my own actions. Where the FSA has decided my conduct fell below the expected standard, it is only right that I accept the personal and financial consequences imposed.”


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There are 10 comments at the moment, we would love to hear your opinion too.

  1. Shades of Enron? Is there going to be a criminal investigation for market abuse? If they consistently misreported figures for a public company which ultimately failed was this not a major fraud?

  2. Who will also send a “loud and clear”message to senior directors at the FSA that action will be taken against individuals who fail to act with integrity or to perform their role to a high standard ? Oh sorry I forgot, its one rule for them another for us. We get fined they get a bonus!

  3. Surely these revelations are grounds for a class action by NR shareholders who lost money following the demise of the Rock?

  4. About time they went after the big boys!

  5. So thats a start, I think that they got of lightly why have they not been jailed for fraud as these were very serious issues.

    I also want to know why other chief executives like Fred Goodwin are not also in the dock just because they have retired does not mean that the FSA cannot take action. After all it was a Commons select committee that claimed serious flaws in procedures at Royal Bank of Scotland which the directors and chief executives are directly responsible for under FSA rules. It’s about time that we saw justice been done rather than just having rhetoric from the FSA and blaming the small guy and letting us pick up the pieces that the so-called big bank bosses have left.

    It’s time to fine, ban and indeed in some cases jail these people that have bought so much misery to not only those working in financial services but to the general public and economy as well.

    If you’re paid a lot of money to do a job and you enjoy the massive rewards while things are going well you should also be held to account when you are found to be breaking regulation and in some cases breaking the law. Please note that this last comment is not aimed at any one individual.


  6. At last the FSA is starting to take action against those responsible. Let’s hope this is just the first of many. The mortgage market will not recover until those responsible have been banned from positons of authority.

  7. Are the CPS or SOCA involved?

    If not, why not?

  8. Some interesting points, please explain why the FSA is so selective? Why has Fred the Shred Goodwin not been prosecuted?

    On the otherhand I feel for Baker and Barclay, did they cause the failure or were they simply trying to correct it. Both are talented and now lost to the industry.

    Equally it appear correct that failure within the FSA is rewarded.

  9. Fine as far as it goes but what about the Chief Executive Officer, Adam Applegarth – where does the buck really stop?

    Also no investigation of the £Millions of shares by the elite group in Northern Rock immediately before the collapse.

  10. I wonder how bothered Mr Baker really is? Was at retirement age, no doubt got a massive pay off and the executive at NR paid themselves enormous salaries and bonuses over the last 10 years.

    To be honest they have all got off lightly…and thats no surprise. The FSA are hopeless at enforcing any sort of effective action against the big corporations and those that run them, even when its blatantly obvious that a company’s drive for market share and profit was only sustainable only on a knifes edge.

    But let us not forget those responsible at the FSA who fell short of the publics standards to perform to a similar high standard and ensure this never happened at those banks.

    What was it that happened to those individuals again??

    I rest my case….

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