Damning RBS report urges law change

News / Damning RBS report urges law change

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The law should be changed to allow the directors of failed banks to be automatically banned, fined and stripped of their remuneration, according to a long-awaited report into the catastrophic failure of Royal Bank of Scotland three years ago.

In a near 500-page report into the management and regulatory failings that brought about RBS’s collapse following its takeover of Dutch rival ABN Amro, Financial Services Authority chairman Lord Turner says the regulator was legally hamstrung.

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“The fact that no individual has been found legally responsible for the failure begs the question: if action cannot be taken under existing rules, should not the rules be changed for the future?”

Banks are different from other kinds of company, Lord Turner says. The failure of a bank is “a public concern, not just a concern for shareholders”. As a result, major bank acquisitions should in future require explicit regulatory approval, the report concludes.

The FSA report, published on Monday, is damning of RBS and its former management, led by Sir Fred Goodwin, the vilified former chief executive, and Johnny Cameron, former head of the investment banking division.

The critique centres on the bank’s weak capital position, an over-reliance on short-term funding and “underlying deficiencies in RBS management, governance and culture which made it prone to make poor decisions”.

But the report is also highly critical of the FSA itself. Lord Turner, who took over as chairman of the regulator at the height of the financial crisis, condemns the FSA’s “flawed supervisory approach which failed adequately to challenge the judgment and risk assessments of the management of RBS”.