MP calls for FSA overhaul

The damning internal re-view of the Financial Services Authority’s blunders in the Northern Rock affair shows the regulator needs a “root and branch” reform.

This is the view of John McFall, chairman of the Treasury Committee, who will grill FSA chiefs next month as part of an ongoing inquiry into financial stability.

McFall says: “The industry has a re-sponsibility to work with the regulator to maintain confidence in the financial services sector.

“To some extent, the present liquidity crisis is a result of trading in products so complicated that market participants did not understand what they were buying.”

The review reveals several FSA failures with regard to NR. These include a lack of sufficient supervisory engagement with the bank, a lack of adequate oversight by FSA management of the quality, intensity and rigour of its supervision and inadequate resources to supervise NR.

Hector Sants, chief executive of the FSA, says: “It is clear that our supervision of NR was not carried out to an acceptable standard. But whether that would have affected the outcome in this case is impossible to judge.”

The FSA plans to beef up staffing levels and training. It also intends to keep a closer eye on big banks by creating supervisor specialists.

These specialists will review the supervision of what the regulator calls high impact firms, which means financial services companies that could jeopardise the financial stability of the UK.