The FSA is to recruit 100 staff to bolster its supervisory and risk assessment functions after admitting that its supervision of Northern Rock was unacceptable.
In response to a devastating internal report, the FSA says it will give greater priority to the supervision of individual firms and senior staff will have more direct involvement in the supervisory process.
The internal report identifies four major failings – a lack of sufficient supervisory engagement with the firm, a lack of adequate oversight and review by FSA line management, inadequate specific resource directly supervising the firm and a lack of intensity by the FSA in ensuring all risk information was properly utilised.
The FSA will enhance the profile of its prudential risk management and business analysis through its renamed prudential risk division.
The regulator is to reverse its practice from the last two years of reducing staff numbers in order to fund better-quality individuals.
The number of supervisors will rise from 506 to 570 and then to 625 by March 2009 due to the small firms’ strategy already announced. There will be a rise of around 30 staff in its risk and business analysis functions.
A new group of supervision advisory specialists will be created to conduct regular quality assurance reviews of all high-impact firms.
FSA chief executive Hector Sants says: “This programme is the response of the management of the FSA to the weaknesses identified in the particular case of the supervision of Northern Rock.
“It is clear from the thorough review carried out by the internal audit team that our supervision of Northern Rock in the period leading up to the market instability of late last summer was not carried out to a standard that is acceptable, although whether that would have affected the outcome in this case is impossible to judge.”