FSA says not enough evidence to bring anyone to court for the collapse of RBS
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The Financial Services Authority says there is not sufficient evidence to bring enforcement action against any one member of Royal Bank of Scotland’s senior management team or board which has a reasonable chance of success in Tribunal or court proceedings.
In its report today on the bank’s collapse the regulator concludes that ultimately it was the poor decisions made by the RBS management and board that were lay at the heart of the bank’s problems and it has highlighted six contributory factors.
- Significant weaknesses in RBS’s capital position, as a result of management decisions and permitted by an inadequate global regulatory capital framework
- over-reliance on risky short-term wholesale funding, which was permitted by an inadequate approach to the regulation of liquidity;
- concerns and uncertainties about RBS’s underlying asset quality, which in turn was subject to little fundamental analysis by the FSA;
- substantial losses in credit trading activities, which eroded market confidence. Both RBS’s strategy and the FSA’s supervisory approach underestimated how bad losses associated with structured credit might be;
- the ABN AMRO acquisition, on which RBS proceeded without appropriate heed to the risks involved and with inadequate due diligence; and
- an overall systemic crisis in which the banks in worse relative positions were extremely vulnerable to failure. RBS was one such bank.
The report also admits that it was too focused on conduct regulation at the time and its own prudential supervision of major banks was inadequate.
The FSA operated a flawed supervisory approach which failed adequately to challenge the judgement and risk assessments of the management of RBS. This approach reflected widely held, but mistaken assumptions about the stability of financial systems and existed against a backdrop of political pressures for a light touch regulatory regime.
Adair Turner, chairman of the FSA, says: “The fact that no individual has been found legally responsible for the failure begs the question: if action cannot be taken under existing rules, should not the rules be changed for the future?
“In a market economy, companies take risks on behalf of shareholders and if they make mistakes, it is for shareholders to sanction the management and board by firing them. But banks are different, because excessive risk-taking by banks, for instance through aggressive acquisitions, can result in bank failure, taxpayer losses, and wider economic harm. Their failure is a public concern, not just a concern for shareholders.”
Instead he calls for a debate on policy options to ensure that bank executives and boards strike a different balance between risk and return than is acceptable in non-bank companies.
- A strict liability approach, making it more likely that a bank failure like RBS’s would be followed by successful enforcement actions, including fines and bans.
- An automatic incentives-based approach involving either rules which automatically ban senior executives and directors of failed banks from future positions of responsibility, or major changes to remuneration to ensure that a very significant proportion of pay is deferred and forfeited in the event of failure.
To read the full report, click here.
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Readers' comments (12)
No one accountable | 12 Dec 2011 9:25 am
Try looking a little bit closer to home. Who runs the FSA and some one must have been overseeing the RBS goings on.
Fine them, ban them and strip them of theit pensions
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Anonymous | 12 Dec 2011 9:26 am
Incredible, but i bet if i didn't use a cross cut shredder they would take me to court !!
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Anonymous | 12 Dec 2011 9:36 am
It is no surprise that the FSA do not wish to see their buddies in court
Why is the FSA being taken to court?
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Neil | 12 Dec 2011 9:40 am
Well well well nobody responsible, although doesn't the buck stop with the company bosses who ultimatly run the company & therefore should take responsibilty. They were remunerated well for their wrong decisions and should be asked to repay at least a substantial part of it back including their gross pensions. It sounds like there have been some deals done in the smoke filled rooms in their gentlemens clubs to get them off the hook only to leave the tax-payer to pick up the tab What a farce! From the Panorama programme they were negligent at least.
I'm also disappointed that the record keeping at the FSA does not appear to be up to scratch either, as they can't find anybody responsible there too.
I see no responsibility lies with individuals in the government of the day, who were behind the de-regulation of the banks either incredable.
It all seems to be a great club to be in, I don't suppose I could get in could I?
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Anonymous | 12 Dec 2011 9:51 am
The ordinary people of the country will pay the price for reckless gambling by RBS, and their like for many years to come, and for the failings of the FSA. Yet, blame cannot be apportioned to anyone. Meanwhile smaller firms have to bear ever increasing regulation as a result. No surprises here!
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Anonymous | 12 Dec 2011 10:20 am
So FSA are to blame (partially).Are we going to see them being heavily fined and ban some of their executives from holding such supervisory positions in the future. Lets get some big headlines about how the FSA is in disarray
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bobby | 12 Dec 2011 10:27 am
Strange that as they ALWAYS find enough info against mortgage brokers, often trumped up to fine them, take them to court or force them out of business. Same old. Same old.
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Anonymous | 12 Dec 2011 10:40 am
It is all quite simple. The FSA have failed, and it has to be said, in quite a glorious fashion.
The FSA have only written such a self defamating assessment of their dealings with RBS because they are confident that they will not be brought to task for their failings.
It does however raise some important questions going forward:
FSA, fit for purpose? Quite obviously not.
At what point does the FSA not become subject to the legal framework surrounding "vicarious liability" that everyone else seems to have to abide by?
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Anonymous | 12 Dec 2011 11:17 am
I assume supervision of RBS by the FSA amounted to a lunch every 3 months or so.
Meanwhile the small mortgage and financial advice firms hounded and fined for items such as that missing KFI and the wrong wording on their business cards and letter heads.
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Anonymous | 12 Dec 2011 2:32 pm
In that very year did the FSA not congratulate themselves and pay themselves huge bonuses ? Will they be paying those back ?
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