Friday, 17 December 2010

More Toothlessness From the FSA

One of the news stories that I missed while I was away was the  FSA announcing that they had cleared the Royal Bank of Scotland of any wrongdoing, quantifying their judgement by stating that RBS had made “a series of bad decisions” that “were not the result of any lack of integrity by any individual and we did not identify any instances of fraud or dishonest activity by senior individuals or a failure of governance on part of the board”.

It is worrying that the FSA, above everyone else, has failed to grasp the accusations levelled at RBS.  The charge against Goodwin, McKillop and everyone else is not that some sort of fraud occurred.  It is that in the course of events, the board of RBS did not show due diligence when approaching the takeover of ABN Amro.  In short the charge against RBS is that of criminal negligence.  What the FSA have done is akin to investigate a murder and found no charge of murder, when manslaughter had taken place.  Not that the FSA were able to uncover any smoking gun, with Adair Turner saying in his letter to Andrew Tyrie that “We find that, while there are undoubtedly instances of highly questionable judgement, there was not behaviour which could be subject to a successful enforcement action.” I have said before that the RBS board were very keen to push the takeover of ABN Amro through, before seeing the key debt reports.

It is interesting though that RBS have blocked the publication of the full judgement.  The FSA have in response to this written to the chairman of the Treasury Select Committee, Andrew Tyrie requesting help to resolve this impasse.  The FSA in the letter are looking to publish by March of next year.  Interestingly, in Robert Pestons own post about this, he reminds us that in the US, RBS are in the middle of a lawsuit involving investors who believed that they were misled by the bank’s directors.  Peston makes the point that this is the equivalent to taking the third amendment.  Critics would argue that this is RBS trying to hide evidence.  Their actions here do make them look guilty.  Of course in this country, only the rich can afford law suits, this is the reason why RBS are not in trouble here.

The letter to the Treasury Select committee raises the issue of the constraints that the FSA are tied into, constraints which hamper the regulatory processes.  Unfortunately as the financial sector continues to try and wind the clock back to 2006, the FSA have shown themselves to be ill equipped to go after the main culprits.  This does not bode well for their investigation into the collapse of HBOS.

No comments: