FSA chairman Lord Turner has defended Hector Sants’ future role as chief executive of the Prudential Regulation Authority after a senior MP suggested he should consider whether or not it was right for him to take up the position.
In an interview with BBC Radio 4’s Today programme this morning, Treasury select committee member and Conservative Party vice-chairman Michael Fallon said that despite the 452 page report cataloguing a number of regulatory failures, the bank and the regulator still had questions to answer. The report itself was only published after substantial pressure from the TSC.
He attacked the fact that no-one had been held responsible for RBS’s failure. He added that it was for Sants to consider the “very good question” of whether or not he should take up the role as PRA chief executive.
Speaking later on the same programme, Turner said he backed Sants for the new role because it was when he took over the FSA that new rules around bank liquidity and capital started to be put in place.
He said: “It is important to realise until July 2007 Hector was not in charge of the key retail division which was responsible for the supervision of RBS and the other major banks. If you read the report, you will see Hector becoming chief executive of the whole FSA is the point we began to do many of the things that needed to be done.”
Sants is currently chief executive of the FSA. Proposals now going through Parliament will see the regulator abolished and replaced with the Prudential Regulation Authority and Financial Conduct Authority. Sants is set to take over the PRA when it begins operating in early 2013 while Martin Wheatley will run the FCA.
Fallon said there are “no heroes” in the story of RBS’s failure and that people will be “most annoyed” that no one has been held responsible for the bank’s failure.
He said: “Nobody has taken the wrap for a scandal which cost this country nearly £50bn. Ed Balls is now Shadow Chancellor, nobody at the FSA seems to have been sacked and the directors of RBS are free to go and be directors of other companies.”
Turner said it is very difficult to put together a legal case against senior RBS staff.
He said: “You need to prove people were fraudulent, reckless or incompetent in a way you can pin down, precisely and on a personal basis, as having led directly to the failure that occurred. But you also have to show it was criticisable and outside the bounds of reasonableness, a key phrase, at the time and not with hindsight. Our lawyers went through it and believe they did not have a case that would stand up in a court of law.”
The Government pumped £45.5bn into RBS at the height of the financial crisis, an investment now bearing a loss of £25bn. The FSA were originally reluctant to publish the report and today’s publication is the result of considerable pressure from the TSC. The committee appointed two independent peers to review all the information and produce a summary report. Turner said he “underestimated” how important it was for the public to be able to see the report to make up their own minds about what happened.