UK regulator admits it did poor job
The United Kingdom's financial services regulator admitted yesterday that it had done a poor job of supervising Northern Rock, the mortgage lender which became the UK's most prominent victim of the subprime mortgage crisis.
Northern Rock was forced to turn to the government for support when its short-term lending resources dried up - leading to a run on deposits. The government nationalized Northern Rock in February, and the company is now undergoing reorganization.
The Financial Services Authority said an internal audit had identified four major failings regarding Northern Rock: insufficient engagement with the company resulting in no rigorous follow up of problems arising from the credit crisis; a lack of adequate oversight of Northern Rock management; insufficient resources to supervise the company; and a failure to ensure that all available risk information was properly analyzed and applied.
"The review concluded that, overall, the supervision of Northern Rock was at the extreme end of the spectrum within the firms reviewed in respect of these failings and that its supervision did not reflect the general practice of supervision of high-impact firms at the FSA," the agency said.
To improve its performance in monitoring companies such as Northern Rock, the agency said it was creating a new group of specialists to regularly review supervision.
The numbers of supervisory staff monitoring high-impact companies will increase, and the agency said it will expand its prudential risk department.
The agency said it will also pay greater attention to the liquidity of high-impact retail companies, and be more rigorous in assessing the competence of senior management.
"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," said Hector Sants, the agency's chief executive.
The agency did not immediately release the full text of its review, but said it would be available by the end of April.
Agencies
(China Daily 03/27/2008 page17)
