MPs slam ‘dysfunctional’ FSA board as Sants admits failings

The regulator’s approach to supervision of UK banking institutions was “inadequate” prior to the financial crisis, its chief executive Hector Sants told a Treasury Select Committee hearing yesterday (30 January).

Giving evidence on the watchdog’s report into RBS, Mr Sants said he had no involvement with the investment banking division of RBS, stating that the board had placed this on the retail side of the regulator.

MPs said that Mr Sants painted an “astounding” picture of how the regulator’s board approached supervision prior to 2008, with the Committee branding its operations as “utterly dysfunctional”.

Mr Sants said: “I agree that general approach for supervision in place before the crisis in relation to overseeing UK institutions was inadequate. I changed it when I came in as chief executive.

“I waited for the Northern Rock report and from March 2008 introduced changes to the entire approach to supervision.”

Mr Sants went on to say that he had nothing to do with the Northern Rock collapse as the FSA under executives did not discuss supervisory issues nor were executives’ decisions questioned.

When questioned about the take-over of Dutch bank ABM Ambro, Mr Sants said: “The existence of the takeover was a report by the MD responsible for it... [there was] no substantive decision at board level but some bi-lateral conversations between MD and chief executive. I had no involvement.”

He said: “I had no knowledge and no cross decision. I asked to get involved but the chief executive said no. Maybe I should have shouted more as I have gone back to this event many times but I did raise the issue.”

MPs said: “It sounds like an utterly dysfunctional board at the FSA.”

Mr Sants claimed that the FSA did not have “enforcement powers” under its own watch, when asked why Fred Goodwin and other senior individuals had not had any enforcement action against them.

MPs highlighted that the report made it clear that the FSA considered the RBS board and other senior executives made a “series of very poor decisions” that led to the bank’s failure.

The MPs pointed out that the report stated that the FSA could not take action against Mr Goodwin “simply on the grounds” that there was failure.

Mr Sants replied that in his personal opinion Mr Goodwin was not fit to run a financial institution, but that it needs to be “demonstrable that individuals are not competent”. He added that the threshold for barring authorisations was far lower than the threshold for enforcement.

He said: “Going forward...should change regulatory regime to allow regulators to take this sort of argument into account to show people that failure misjudgements can’t ruin financial institutions again. I support Parliament to make this change.”