Vivek Ahuja Of FINANCIAL NEWS
An influential U.K. parliamentary body has called on the government to hand the Prudential Regulatory Authority, which is set to replace the Financial Services Authority next year as a key U.K. financial regulator, an explicit legislative mandate to approve major bank mergers and acquisitions.
The Treasury Committee, led by Chairman Andrew Tyrie MP, on Friday recommended the government “include an explicit requirement for the Prudential Regulatory Authority to approve major bank acquisitions and mergers in forthcoming legislation.”
It recommended the U.K. 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.”
The committee made its recommendation in a report that scrutinized another investigation, which was carried out by the FSA last December, into the failure of the Royal Bank of Scotland in late 2008. The FSA is set to be effectively split early next year to form the Financial Conduct Authority and the PRA, which will be a part of the Bank of England.
That FSA carried out its investigation into the failure of RBS after the U.K. bank required a bailout by the U.K. government following its ruinous multibillion-euro takeover of Dutch bank ABN Amro in mid-2007.
In the FSA’s report, it cited a number of factors that led to the failure of RBS. These included significant weaknesses in its capital position, overreliance on short-term wholesale funding and the ABN Amro acquisition on the basis of inadequate due diligence. The FSA also said it realized that on large mergers and acquisitions, extra resources should have been made available by the regulator to scrutinize the deal.
The Treasury Committee on Friday also criticized the FSA’s handling of the RBS acquisition of ABN Amro. “The FSA should have intervened at an early stage,” the report said.
“It should and could have intervened at a late stage, albeit with more difficulty. We need a regulator with the self-confidence to intervene, even if it might cause some destabilisation in the short term.”
The committee also noted the FSA’s original decision in December 2010 not to publish a full report on the demise of RBS, before relenting. Tyrie noted that “without persistent pressure” from the committee, the FSA’s report “would never have been published”. He added: “We now have a comprehensive report that gives a better idea of what went wrong at both RBS and the FSA.”
The committee found that the FSA’s initial belief that a brief statement on RBS’s failure would suffice “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.”
The Treasury Committee report also expressed “considerable surprise” about the fact that nobody apart from the bank’s former chairman of global banking and markets, Johnny Cameron, has been held “meaningfully accountable” for the bank’s failure.
The FSA said in May 2010 it wouldn’t be taking disciplinary action against Mr. Cameron as part of an agreement under which he would be barred from working full-time in the financial sector or from holding a position of significant influence, but would be able to take on part-time consultancy work.
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