MPs have attacked the FSA for failing to properly supervise Northern Rock and have proposed a new office within the Bank of England to look after financial stability.
The Treasury select committee report into the Northern Rock debacle calls on the FSA to undertake an “urgent review” of the qualifications of senior directors in financial firms. It criticises the regulator for allowing the appointments of the Northern Rock chief executive and chairman despite neither being qualified bankers.
The select committee considers that the FSA “systematically failed” in its duty as a regulator to ensure Northern Rock would not pose such a systemic risk.
Its report says: “It did not allocate sufficient resources or time to monitoring a bank whose business model was so clearly an outlier; its procedures were inadequate to supervise a bank whose business grew so rapidly.”
The report says instead of the FSA being given additional solvency powers, as the Chancellor has proposed, a new office at the Bank of England should be set up to look after financial stability.
It would be given the lead responsibility within the tripartite authorities if a future crisis occurs.
But Chancellor Alistair Darling, who will reveal his reform proposals this week, appears to have dismissed giving the Bank of England extra powers over the FSA. He told the News of the World: “We need to tighten up the system and fill in any gaps but the reforms I announce need to build on the reforms made 10 years ago, not reverse them.”
An FSA spokesman says: “As we have already acknowledged publicly, there were clearly supervisory failings in relation to Northern Rock and we are already addressing these. We will also examine carefully any further lessons that emerge from our internal review of the supervision of Northern Rock.”