On 26 March, the Financial Services Authority (FSA) published a summary of a review carried out by its internal audit division into its supervision of Northern Rock. The Chief Executive of the FSA admitted that the supervision of Northern Rock in the period leading up to the market instability of late last summer was not carried out to an acceptable standard. The review identified a number of areas for improvement in the execution of supervision, which are being advanced by the FSA’s management via a dedicated supervisory enhancement programme. The recommendations are designed to improve the FSA’s supervision of firms rated as high-impact using ARROW, the FSA’s framework for identifying risks from firms or industry sectors to its regulatory objectives.
The main features of the supervisory enhancement programme are:
- A new group of supervisory specialists will regularly review the supervision of all high-impact firms to ensure procedures are being rigorously adhered to.
- The numbers of supervisory staff engaged with high-impact firms will be increased, with a mandated minimum level of staffing for each firm.
- The existing specialist prudential risk department of the FSA will be expanded following its upgrading to divisional status, as will the resource of the relevant sector teams.
- The current supervisory training and competency framework for FSA staff will be upgraded.
- The degree of FSA senior management involvement in direct supervision and contact with high-impact firms will be increased.
- There will be more focus on liquidity, particularly in the supervision of high-impact retail firms.
- There will be raised emphasis on assessing the competence of firms’ senior management.
Click here to view the FSA press release.
Click here to view the executive summary of the FSA’s review.