FSA admits regulation of banks was flawed

Giving evidence at the Treasury Select Committee this afternoon, Adair Turner, the chairman of the FSA said while there was competent execution, "in retrospect" the style of regulation was not.

Lord Turner said that prior to the banking crisis, there had been political pressure to be less intrusive when looking into banking organisations.

As a result, he said a style of regulation had developed where it was the FSA's role to look at institutions structures and systems as opposed to probing its business strategy.

Admitting he had spent the last few weeks looking through the HBoS file, he said in retrospect the regulator should have been more involved in sectorial analysis "but this was not believed at the time."

He said: "We were supervising people like HBoS within a particular philosophy of the way you do regulation, which I think in retrospect was wrong.

Last year, HBoS was taken over by Lloyds TSB, now the Lloyds Banking Group, in a bid to prevent it from collapse.

Northern Rock and Bradford & Bingley were also fully nationalised while RBS is now majority owned by the government.

Lord Turner added: "We have to get it right for the future."

When quizzed if the FSA was fit for purpose, Lord Turner said: "It is going to be fit for purpose given the changes we are going to make."

Hector Sants, chief executive of the FSA, backed up this statement by saying the organisation was "a long way through a set of necessary changes."

He said the FSA was "fundamentally different" to the organisation it was 12 months ago.