FSA admits Rock handling failures

The Financial Services Authority (FSA) said its supervision of the now-nationalised group "was not carried out to a standard that was acceptable" in a long-awaited internal report into the Northern Rock debacle.

The FSA identified four key failings in its work with the group, including inadequate supervisory resources and a "lack of oversight and review" by FSA line management.

The regulator said there were continuity problems with the managers responsible for supervising the bank, with three different heads of department in the role during two-and-a-half years.

It also admitted that none of the heads of department had met Northern Rock since January 2005, despite managers on average meeting one of the firms under their charge every week.

The FSA is proposing to recruit an extra 100 staff to boost its risk assessment and supervisory capability in light of the review.

The regulator said it had cut supervisory staff numbers by 5% over the past two years as part of a policy to reduce the workforce "to fund better-quality individuals".

But it said it would now ensure there would be a minimum requirement of employees in charge of firms classed as higher risk.

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 whether that would have affected the outcome in this case is impossible to judge.

"However, I am determined, through the programme of work that I am announcing today, that proper standards will apply to all significant firms supervised by the FSA."