FSA Slammed For RBS 'Serious Misjudgment' Over Disastrous Takeover Of ABN Amro

FSA Slammed For RBS 'Serious Misjudgment' Over Disastrous Takeover Of ABN Amro

The financial watchdog and the Bank of England have received stinging criticism from MPs on the Treasury Select Committee over their behaviour during the financial crisis.

A report into the Financial Services Authority's role in overseeing RBS's acquisition of Dutch bank ABN Amro saw the committee chastise the regulator for not intervening to stop the takeover.

The FSA should have intervened at an early stage, and could (and should) have intervened at a later stage, the report declared, adding that the UK needed a financial regulator with the self-confidence to intervene, even if it might cause some destabilisation in the short-term.

Andrew Tyrie MP, chairman of the Treasury Committee, commented: "It is crucial that the Prudential Regulatory Authority (one of two regulators to replace the FSA) takes on board an important lesson from this report – there is no substitute for the exercise of judgement.

"There are early encouraging signs that, in the PRA, judgment-based regulation is doing more of the heavy lifting than the FSA’s failed culture of box-ticking."

The committee also slammed the FSA's decision to only publish a brief 298-word statement about RBS’s failure in December 2010, saying it was symptomatic of the cultural and governance problems at the regulator.

Lord Adair Turner, who was the FSA's chairman at the time and is in the running for the Bank of England governor role, comes in for criticism too: "Lord Turner’s comment that a report into the demise of RBS “would add little, if anything, to our understanding of what went wrong” was inadequate.

"He should have grasped the need for a public explanation of how that situation had arisen, something which he has subsequently acknowledged. We would not expect the new chairmen of the regulators to repeat the error," the report said.

The committee's report said the FSA's own report, describing the failures and inadequacies in the regulation and supervision of capital, liquidity and asset quality and the failure to appropriately analyse the risks relating to the ABN AMRO acquisition, was in itself a "serious indictment of both the senior management and leadership, and in particular the chairman and chief executive, in place at the time, and their predecessors".

The Bank of England was also castigated for failing to publish a review of its performance during the crisis.

Despite announcing a number of reviews examining aspects of its own performance in this period, the committee felt not publishing a full report fell "well short of what is required".

Tyrie said: "The Bank of England has still to produce a comprehensive review of (its) role in, and response to, the crisis. While the three reviews announced earlier this year represent some progress, they fall well short of what is required. A comprehensive review should already have taken place.

"The Treasury Committee has been pressing for changes to the Financial Services Bill to ensure that reports such as this are produced by regulators. The committee will return to the issue after the publication of the three reviews commissioned by the court of the Bank of England. A radical improvement of the bank’s own governance is an essential part of regulatory reform."


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