MPs criticise Financial Services Authority over RBS

A RBS £20 notes MPs said the lessons from RBS's failure should have been learned earlier

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MPs have criticised the UK financial regulator for its failings over Royal Bank of Scotland's damaging takeover of part of Dutch bank ABN Amro in 2007.

The Treasury Committee said the Financial Services Authority "should and could" have intervened. The takeover nearly led to RBS's collapse.

The MPs also criticised FSA chairman Lord Turner's initial reluctance to publish a full report into RBS.

In a statement, the FSA said it had put in place a new model of supervision.

RBS's takeover of ABN, just before the financial crisis unfolded, left the UK bank with too little capital to absorb losses, and the FSA pressed the bank to raise money through a £12bn rights issue - a move that did nothing to stop it having to be rescued by taxpayers.

The committee's report, The FSA's Report Into the Failure of RBS, says that the regulator should have acted far sooner to investigate the bank's takeover of ABN and whether it was sensible.

"The FSA should have intervened at an early stage. It should and could have intervened at a late stage, albeit with more difficulty. We need a regulator with the self-confidence to intervene, even if it might cause some destabilisation in the short-term," the report said.

After RBS's rescue, the FSA conducted an internal investigation into its possible failings, but initially resisted publication of its findings.

Start Quote

A radical improvement of the [Bank of England's] own governance is an essential part of regulatory reform”

End Quote Andrew Tyrie Chairman, Treasury Committee

The MPs' report said: "In December 2010, the FSA initially felt that a 298-word statement about RBS's failure was explanation enough. This reflects serious flaws in the culture and governance of the regulator. It also reflects a fundamental misunderstanding of its duty to account for its actions to the public and Parliament."

The report added: "In view of the vast amounts of public money committed to propping up RBS, 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."

Experience

Andrew Tyrie, chairman of the Treasury Committee, added: "Without persistent pressure from the Treasury Committee, the FSA's report would never have been published.

"We now have a comprehensive report that gives a better idea of what went wrong at both RBS and the FSA."

Lord Turner is being seen one of the main candidates for the job of governor of the Bank of England, succeeding Sir Mervyn King.

Speaking to the BBC's Today programme, Mr Tyrie indicated that he thought Lord Turner was still a valid candidate for the job, adding that "if you are going into battle, it is a good idea to have a general who has fought the odd skirmish".

"Lord Turner himself said that he should have grasped the need for a much more substantive public explanation," he said.

"It was very sensible of him to do that and also it signals to us that here is somebody who has grasped the mistake and is acting on it."

Lessons learned

The report also criticised the Bank of England's failure to have yet published a review of its performance during the financial crisis. The Bank has instigated three reviews, although the MPs said this had been done "belatedly".

The committee's report said that although the Bank's decision to review its performance "represents some progress, it falls well short of what is required".

Delays in starting the review could limit the value of the Bank's conclusions into possible failings, it said.

"Any lessons learned as a result of even these limited reviews will also only be available in a very late stage in Parliament's consideration of the Financial Services Bill," the MPs said.

Mr Tyrie added: "A radical improvement of the Bank's own governance is an essential part of regulatory reform."

The Bank of England had no comment.

A FSA spokesperson said in a statement: "We welcome the committee's conclusions that the FSA's Board report into the failure of RBS is comprehensive and a valuable contribution to understanding why RBS failed.

"The FSA has put in place a completely new model of supervision since the financial crisis in addition to major changes to the capital and liquidity levels firms are required to hold. We will consider the report's findings and recommendations in detail."

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