FSA feels the heat over RBS decision
The City watchdog has defended its decision to bring an individual investigation against Royal Bank of Scotland (RBS) board members amidst heavy criticism.
Adair Turner, chairman of the Financial Services Authority (FSA) revealed last week that the bank, which had to be bailed out by the taxpayer to the tune of over £20 billion, will not be the subject of a probe.
In particular, investigations into individual board members such as the infamous Sir Fred Goodwin will not take place – but Lord Turner has rejected anger at the move.
He wrote of the decision: “This caused criticism that no ‘charges’ would be brought, and no ‘report’ published. Neither criticism is valid.
“An enforcement case needs to rest, not on popular desire to find someone to blame, but on whether rules were broken. Legal investigations are also rightly subject to confidentiality.”
He claimed the decisions taken by the RBS board, particularly its ill-fated takeover of ABN Amro, were “risky, but allowed by the rules of the time and applauded by much of the market”.
The watchdog chief did suggest that rules needed to change, but insisted the FSA could not be held responsible for the “deficiencies of regulatory philosophy already identified” post-financial crisis.
He added of the RBS board members: “They were doing what executives and Boards in other sectors of the economy do: sometimes getting judgements right and sometimes wrong.”
Lord Turner suggested the use of US-style legislation involving “the principle that executives of banks which fail are liable to forfeit two years of past compensation if they were ‘substantially responsible’ for the decisions which led to failure.”
The future of financial regulation is currently in flux, as the government waits for the report of an independent committee next year.
The much-maligned FSA, which stands accused of being insufficiently powerful to tackle excesses in the City, is likely to have its functions subsumed by the Bank of England under coalition plans.
Meanwhile, former prime minister Gordon Brown has told that the government was “misled” by the board of RBS over its risk-taking activities, in extracts from his book on the financial crisis being serialised in the Guardian.
