British FSA chief warns on bank rules
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