Watchdog sorry for bank failings

http://news.bbc.co.uk/go/rss/-/1/hi/scotland/7672632.stm

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Britain's financial services watchdog has apologised for the failure to spot banking problems which led to the massive government bail-out.

Hector Sants, chief executive of the Financial Services Authority, said it had not done its job adequately.

He said it had not ensured banks were properly protected against risk but he claimed lessons were being learned.

Mr Sants was being quizzed by business leaders at a lunch in Edinburgh, where Scotland's biggest banks are based.

The Royal Bank of Scotland and HBOS were forced to seek more than £30bn in support from the UK Government earlier this week.

Mr Sants told BBC Scotland: "We have said sorry and I am saying sorry for our supervisory failings. But this now is a global crisis and you have to ask if a national regulator alone could have taken sufficient action to ensure all UK firms survive this crisis untouched - and I doubt it."

The FSA reviewed its role in the collapse of Northern Rock last year, which led to its nationalisation.

Mr Sants said it found the regulator should have done a better job.

Many people forgot the golden rule: do not sell or buy things you do not understand Hector Sants

"What is clear is that a number of firms went into this crisis in the summer of 07 with business models that were not able to withstand those extraordinary market conditions.

"People expect the regulator to challenge and engage with directors to make sure they were properly managing those risks, and when we look back on our track record, prior to that summer, we were not doing that to a level I find acceptable.

Mr Sants said none of the FSA staff who had been supervising Northern Rock were still in a supervisory role.

And he admitted the complexity of financial products as they circulated round the global system was not understood by businesses or regulators.

He said: "The question is - did anybody understand the consequences of all the inter-linkages between these products?

"And the answer is that nobody really understood the overall global system and the way it would behave in the circumstances of the past 12 months.

"It needs to be recognised that management, the buyers and sellers of these products, need to take a lot of responsibility for what has happened. Many people forgot the golden rule: do not sell or buy things you do not understand."

The watchdog boss was quizzed on executive pay and replied that he is looking at ways it can ensure pay does not encourage reckless risk-taking.

Early next year, the FSA is to publish recommendations on reform to financial regulation.