LONDON – The UK Financial Services Authority (FSA) has released a statement in its defence over the Northern Rock affair after the Treasury Committee of the House of Commons’ report The run on the rock said it failed in its duty as financial supervisor, contributing to the UK’s first bank run in almost 150 years.
In a statement the FSA states: “As we have already acknowledged publicly, there were clearly supervisory failings in relation to Northern Rock and we are already addressing these. We intend to study carefully the Committee’s report and will respond more fully in due course. The report will inform our input into the Tripartite Authorities’ wider consideration of reform, which is currently underway.”
The Treasury’s report concluded that Northern Rock’s directors were primarily to blame for pursuing “a reckless business strategy” that was excessively reliant on funding from the wholesale market.
It went on to say the FSA had failed as a regulator, and recommended reform both of the FSA and the Bank of England, and in particular the creation of new posts to improve communications between the Treasury, the Bank of England and the FSA – the three arms of Britain’s tripartite financial authorities.
“The FSA appears to have systematically failed in its duty and this failure contributed significantly to the difficulties and risks to the public purse that have followed,” says John McFall, chairman of the Treasury Committee.
The Treasury said the affair had been marred by poor communication and lack of planning when the authorities and those at the Northern Rock ought to have “strained every sinew” to promptly announce, finalise and initiate the emergency operations launched to save the ailing bank and protect public money.
“Planning must begin immediately so that on any future occasion it is known who will speak for the authorities and that their message is clear and reassuring. A strong co-ordinating influence from one office will surely help with this,” says McFall.