Despite having spent an estimated £10m on its report into the failure of RBS the FSA has failed to find any smoking guns. The regulator's chairman Lord Turner has found no evidence that anyone at the bank or at its advisers deserves to be punished, as none actually broke any rules.
Given what happened at RBS, this is extraordinary. However it was predictable given that the FSA was always a poor choice to investigate the failure of banks like RBS and HBOS, given that it has a vested interest in the outcome being a form of whitewash. This is due to the FSA's complicity in the banks' failures, and its fear that delving too deeply would shine an even harsher light on its own lamentable performance, as well as potentially opening the floodgates to further investor law suits against our state-rescued banks.
The FSA's "see no evil" approach may also have been shaped by an impulsive desire to protect what the broadcaster Max Keiser has described as London's status as the "global capital of fraud".
One thing is certain. While the FSA report does have plenty of merits, it is an unreliable and incomplete guide to why RBS failed. Due to a process known as 'Maxwellisation', the bank's ex-directors and their solicitors were allowed to review drafts of the report and to seek to remove passages which they felt might be harmful to their interests. They appear to have been quite successful.
As a result, and as predicted, the FSA has focused on the low-hanging fruit, most of which has been ripening in the public gaze for the past three years or more. So it made much of the astounding lack of involvement of Johnny Cameron, who oversaw RBS's investment banking arm in the years prior to its collapse, and repeatedly stressed the role of the ABN acquisition in precipitating the Edinburgh-based bank's demise.
However there are some critical factors in the RBS implosion which were either left out or glossed over by the FSA. These include:-
• The allegedly fraudulent misrepresentation, packaging and bundling of hundreds of billions of dollars' worth of subprime residential mortgage-backed securities (RMBS) by RBS Greenwich Capital, over which RBS is already being sued for in the region of $10 billion by the Federal Housing Finance Agency, an arm of the US Federal government.
• The veracity of RBS's April 2008 rights issue prospectus. Even though the FSA's report devotes five pages to this, it fails to tackle the critical issue of whether the bank deliberately duped investors into investing a further £12bn in an already doomed bank by providing a misleading picture of its own financial health. The FSA's take on the matter is simply that the bank had a "bias towards optimism".
• The role of the bank's audit committee, a committee of its board made up of three non-executive directors. The audit committee was supposed to be monitoring the integrity of financial statements, reviewing internal financial controls and risk management, and reviewing and monitoring the independence and effectiveness of the external auditors (in RBS's case Deloitte & Touche). Yet the FSA report sheds no light on whether the RBS audit committee, chaired by retired accountant Archie Hunter, was performing any of these functions adequately.
• The possibility that Sir Fred Goodwin and other directors were emulating Lord Black at Hollinger in terms of the lavishness of the perks and benefits to which he felt they felt entitled. In Goodwin's case these included a scallop kitchen, a reported £100,000 a month spent on chauffeurs, and a suite at the Savoy complete with personal valet to look after his clothes.
In view of these omissions, I was relieved to discover this morning that not all Whitehall departments share the FSA's apparent penchant for wagon circling and back covering. According to a report by Louise Armitstead in the Daily Telegraph, the Department for Business, Innovation and Skills, led by Business Secretary Vince Cable, is seeking to press criminal charges on Fred Goodwin and other ex-RBS directors under the Companies Act.
Apparently the FSA report has revealed that Fred Goodwin and his co-directors may have broken the UK's accounting laws as a result of their failure to "disclose [their company's] financial position with reasonable accuracy at any time". Directors of a company are supposed to ensure an "adequate record is made and retained... of any expected loss, liability or contingency material to the assessment of the current position." The FSA's report suggests the RBS directors, including its finance director Guy Whittaker who featured in the recent BBC documentary about RBS that I had a hand in making, didn't do this.
Maybe the FSA will have to go back to the drawing board all over again? Go, Vincent.