Following the bank’s application for emergency funding in September, the regulator has identified four key areas for improvement in the execution of supervision.
It outlined the fact that there was a lack of sufficient supervisory engagement, particularly with the failure of the supervisory team to follow up with the management of the firm on the vulnerability of the business model.
There was also a lack of oversight and review by line management of the quality, intensity and rigour of the firm’s supervision, inadequate specific resource in directly supervising the firm and a lack of intensity by the FSA in ensuring that all available risk information was properly utilised to inform its supervisory actions.
However, the regulatory board noted that, even if supervision had been carried to an acceptable level to the FSA, there was no evidence that the outcome would have been any different.
Its aims to improve as part of its supervisory enhancement programme are to create a group of supervisory specialists who will regularly review the supervision of all high-impact firms to ensure procedures are being rigorously adhered to. It will also increase the numbers of supervisory staff engaged with high-impact firms with a mandated minimum level of staffing. There will be an upgrade in training and more focus on liquidity.
Hector Sants, chief executive of the FSA, said: “It is clear from the thorough review carried out by the internal audit team that our supervision of Northern Rock in the period leading up to the market instability of late last Summer was not carried out to a standard that is acceptable.
“Although, like any organisation, we cannot and do not claim infallibility, and we cannot, and should not, attempt to remove all risk from the system.”
Richard Fox, chief executive of the Society of Mortgage Professionals, said: “It’s a pity that it is all internal looking and not looking at its external relationships with bodies such as the Bank of England and the Treasury.”
