FSA bans and fines former Northern Rock director £320,000

27 July 2010 | By Natalie Thomas

He has also been banned from performing any function in relation to any regulated activity

Jones’s misconduct started in mid January 2007 when he agreed, along with David Baker, former Northern Rock deputy CEO, to allow false mortgage arrears figures to appear in explanatory text published with the 2006 annual accounts.

Reporting correct figures would have either increased arrears by over 50% or possessions figures by approximately 300%.

For nearly a year, Jones was responsible for the continued misreporting of arrears and possessions figures on a monthly basis to NR’s assets & liabilities committee and, on a quarterly basis, to the Council of Mortgage Lenders.

Margaret Cole, FSA director of enforcement and financial crime, says: “Even though other senior directors within the firm were involved in the misreporting of arrears and possessions figures, as a senior director himself and as an FSA authorised person, Jones had a duty to reveal the true position to the public and to important internal committees.

“He had numerous opportunities to put things right, but failed to do so.  

“This is a message to all FSA approved persons, that they must take their individual responsibilities seriously at all times, or suffer the consequences.”

From 2005, NR staff were under pressure to report arrears figures at half the CML average.

To achieve this, a series of improper actions were taken which were outside NR’s stated policy.

For example, cases where a possession order had been made against a property, but where physical possession had not yet been taken (pending possessions cases) were excluded from all arrears and possessions figures.

Although Jones was not involved in the actions that gave rise to their existence, by January 2007 1,917 such cases had been omitted.

Jones was finance director between 10 January 2007 and 1 February 2007. During this time, David Baker informed him of the existence of the pending possessions and asked whether they impacted the firm’s stated provisions for bad debts.

Jones assured himself that the provisions were correct and agreed not to reveal the pending possession cases.

As FD from 1 February 2007 to 22 February 2008, Jones was responsible for the debt management unit and the credit management information unit at NR. Amongst other things, these units were responsible for reporting arrears.

Jones received a 20% discount for settling in Stage 2 of the FSA’s executive settlement procedures. Were it not for this discount, Jones would have been fined £400,000.

Jones released a statement today in which he says: “I co‐operated fully with the FSA during the course of their investigation, and I am disappointed that in reaching their decision the FSA have chosen to disregard the following:

•                  As well as ensuring that the pending possessions were fully provided for in the financial statements, I also ensured that there was no impact on future provisioning levels.
•                  I was satisfied that stakeholders received sufficient information on credit quality to assess future provisioning levels on the residential loan book; if this were not the case, market expectations would have had to have been adjusted; and,
•                  In the first half of 2007, the residential provision charge was only £2m, meaning that residential loan credit quality was not material to the financial position or prospects of Northern Rock at the time.

“I accept that I did not ensure that information on residential arrears prepared and presented by others was corrected to include certain accounts known as “pending possession cases”.

“However, I consider that the FSA’s conclusions and imposed penalty are both unfair and disproportionate.

“I will now put this matter behind me and move on. I intend to pursue opportunities either in an advisory or full time basis building on over 30 years’ experience in finance.”

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