Bri­tish FSA chief warns on bank rules

The Pak Banker - - Company& -

LONDON: En­sur­ing that the heads of failed banks face pun­ish­ment would likely re­quire a set of rules that held them to higher stan­dards than other com­pany di­rec­tors, the head of the City watchdog has warned.

Lord Turner, chair­man of the Fi­nan­cial Ser­vices Author­ity (FSA), makes this ar­gu­ment while de­fend­ing the FSA's de­ci­sion last week not to take ac­tion against the di­rec­tors of Royal Bank of Scot­land - whose £24bn loss in 2008 was the biggest in Bri­tish cor­po­rate his­tory and saw the govern­ment take a 70 per cent stake in the bank. "Achiev­ing a gen­eral shift in at­ti­tudes to risk and re­turn may re­quire that bank di­rec­tors and ex­ec­u­tives are made sub­ject to quite dif­fer­ent in­cen­tives than those that are ap­pro­pri­ate in other sec­tors of the econ­omy," Lord Turner writes in Wed­nes­day's's Fi­nan­cial Times.

The FSA's an­nounce­ment last week that it found no fraud, dis­hon­esty or gov­er­nance fail­ings at RBS, and that it was re­quired to keep its in­ves­ti­ga­tion con­fi­den­tial, has drawn wide­spread crit­i­cism.

Vince Cable, busi­ness sec­re­tary, on Tues­day wrote to Lord Turner that he was "dis­ap­pointed" with the de­ci­sion and re­quested a meet­ing. "It is im­por­tant that I un­der­stand the lessons to be learnt from the RBS ex­pe­ri­ence, and in­deed the par­al­lel in­ves­ti­ga­tion into HBOS," he wrote.

But Lord Turner dis­misses as mis­guided calls for the RBS in­ves­ti­ga­tion to be made pub­lic. He ar­gues that the FSA has not com­piled a for­mal re­port and there­fore has noth­ing that could eas­ily be pub­lished.

Peo­ple fa­mil­iar with the reg­u­la­tor's pro­cesses said that un­less the FSA or­dered a com­pany to com­mis­sion a spe­cial re­port by an out­side ex­pert, the reg­u­la­tor did not usu­ally write for­mal memos sum­maris­ing the ev­i­dence gath­ered and stat­ing the ra­tio­nale for not bring­ing an ac­tion. Lord Turner writes that he doubts a re­port on what went wrong with RBS would add much to the pub­lic de­bate af­ter probes on the fail­ure of North­ern Rock and his own re­port on the larger UK fi­nan­cial sys­tem. "It would re­veal the same de­fi­cien­cies of reg­u­la­tory phi­los­o­phy al­ready iden­ti­fied. In fu­ture we would act dif­fer­ently." He says the prob­lem lies in cur­rent rules that treat ex­ec­u­tives of banks and other types of com­pany sim­i­larly. RBS ex­ec­u­tives were "do­ing what ex­ec­u­tives and boards in other sec­tors of the econ­omy do: some­times get­ting judg­ments right and some­times wrong". -PB News

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