In its report on “The FSA’s report into the failure of RBS”, the Treasury Committee recommends that:
“that Government include an explicit requirement for the Prudential Regulation Authority to approve major bank acquisitions and mergers in forthcoming legislation and that HM Treasury, working with the relevant public bodies, report on the legislative or other changes it proposes to make to the current regime regulating acquisitions in the banking sector”.
Excerpts from the summary:
“On the FSA and RBS’ acquisition of ABN AMRO:
The FSA should have intervened at an early stage. It should and could have intervened at a late stage, albeit with more difficulty.
On the FSA’s original decision not to publish a report on the collapse of RBS:
In December 2010 the FSA initially felt that a 298-word statement about RBS’s failure was explanation enough. This reflects serious flaws in the culture and governance of the regulator. It also reflects a fundamental misunderstanding of its duty to account for its actions to the public and Parliament. In view of the vast amounts of public money committed to propping up RBS, Lord Turner’s comment that a Report into the demise of RBS “would add little, if anything, to our understanding of what went wrong” was inadequate. He should have grasped the need for a public explanation of how that situation had arisen, something which he has subsequently acknowledged. We would not expect the new chairmen of the regulators to repeat the error.
On the Bank of England’s failure to publish a review of its performance during the crisis:
HM Treasury has published a review of its performance during the crisis, which the Treasury Committee will review in due course. The Bank of England has also belatedly announced a number of reviews examining aspects of its own performance in this period. While this represents some progress, it falls well short of what is required. A comprehensive review of the Bank’s role in, and response to, the crisis is needed and we will return to this issue after publication of the three reviews commissioned by the Court of the Bank of England. Moreover, by waiting so long before conducting any review, the Bank of England has diminished its value as a guide to better regulation for the future. Any lessons learned as a result of even these limited reviews will also only be available in a very late stage in Parliament’s consideration of the Financial Services Bill. Incorporation of them into legislation may therefore be more difficult and this is regrettable.
On regulatory and supervisory failure:
The FSA Report describes failures and inadequacies in the regulation and supervision of capital, liquidity and asset quality and also describes a failure appropriately to analyse the risks relating to the ABN AMRO acquisition.
This is a serious indictment of both the senior management and leadership, and in particular the Chairman and Chief Executive, in place at the time, and their predecessors, regardless of the prevailing assumptions and political pressures.
On changes at the FSA since the crisis:
While there is a good deal of agreement that the FSA’s approach was flawed, there is less agreement about what should replace it, with criticism of some aspects of the new regulatory arrangements proposed by HM Treasury.
It is a matter of considerable surprise to this Committee that nobody (with the partial exception of Mr Jonny Cameron, RBS Executive Director and Chairman of RBS’s Global Banking and Markets Division) has been held meaningfully accountable for the failure of RBS.
It is deeply regrettable that the current rules bias enforcement activity towards technical breaches to the detriment of attention to the most important regulatory failures. We request that the regulators report to the Treasury Committee on what amendments to the statutory rules and to the general law they believe are desirable in order to improve the effectiveness of the enforcement regime. We also call on the Parliamentary Commission on Banking Standards to examine this issue.
On the SIF screening process:
We recommend that the Government consult on whether additional legislation is required to ensure that directors or other senior executives of failed banks cannot work in other regulated industries in future, or to make the system more certain.
On future regulation on sanctions against directors:
In financial institutions senior executives reaped large rewards, much of it paid as bonuses inflated by taking on what proved to be unsustainable risks. A great deal has been written about the misalignment of incentives embedded within the financial services framework. We support attempts to remedy this. The introduction of strict liability, however, would be a major change to the existing legal framework and would require full public debate. The Parliamentary Commission on Banking Standards should examine the various options, including strict liability.”