The FSA has admitted its focus on conduct issues like the RDR and treating customers fairly in the run up to the crisis meant the prudential supervision of banks was sometimes regarded as a low priority.
In a report, published today, the FSA admitted it had failed in its supervision of RBS in the run up to its near collapse in 2008.
It also says its focus on the RDR, TCF and Equitable Life meant it was sometimes unable to supervise banks as effectively as it should have.
The report says: “Much of the attention of the FSA board in the pre-crisis period, as of senior executives, was devoted to considering a number of major legacy and current conduct issues that required focus – such as Equitable Life, the Retail Distribution Review and TCF. Attention was also devoted to issues relating to the development of consumer financial capability.
“This reflected the wide spread of the FSA’s responsibilities which, as stressed elsewhere in this report, increased the danger that prudential issues would be accorded low priority in periods when economic and financial stability conditions appeared to be benign.”