FSA Made To Look Bad By A Whistleblower, Again

The FSA has been having a tough time of it recently, and unsurprisingly so – after all, they’re the regulatory body that presided over years of increasingly risky and leveraged banking. There was the James Crosby affair, in which Crosby, deputy chair of the FSA, was forced to step down after his involvement in the Paul Moore scandal became apparent. They smoothed that one over with a round of job creation, promising deeper and more stringent regulation. But now they’re victims of a whistleblower once more – an anonymous former supervisor for the authority told Vince Cable of the FSA’s “apathy and complacency” that led to building societies like Bradford and Bingley and the Dumfermline to go down the tubes.

The full sorry story is in today’s FT, and is well worth a full read. Shocking details include a “book” of mortgages, worth tens of millions of pounds, classified as “full status” (mortgages with full evidence of borrower income) but actually not having any proof of income – the FSA reacted to this by just telling mortgage lenders to have a really proper good look at everything before they buy it. The whistleblower accuses the FSA’s attitude of ranging from “indifference to wilful ignorance” about the mortgage market; smaller mortgage providers were “being eaten alive by cynical, rapacious and short-termist investment bankers” while the FSA stood by. We know that the rating agencies are also at fault for highly rating packages of securitised loans that contained toxic assets, but this is pretty damning of the FSA.

It’ll be interesting to see how the FSA reacts to this, as they’ve already made a concerted effort to tighten up regulation – chairman Lord Turner’s report from last month outlined a range of methods to make the financial services industry a better, less dementedly money-making place. Better liquidity and capital ratios, new accounting rules, not dealing in products that no-one really understands, that sort of thing.

Unfortunately they’ve now also got to explain away the £200,000 in Christmas parties they had. Bad luck to the team who had to go to Madame Tussauds like a group of schoolkids on their last day of term…

Posted by Ben Beaumont-Thomas in Hot Money | April 17, 2009 1:30PM |