Sir Fred Goodwin and other Royal Bank of Scotland executives criticised in December's 450-page Financial Service Authority report are "not fit" to run a bank and will never again work in regulated financial services, according to Britain's top regulator.
Hector Sants, chief executive of the Financial Services Authority, said that although no enforcement action had been taken against them, in his opinion, executives responsible for a catalogue of disastrous decisions leading to the near-failure of RBS in 2008 would be effectively blackballed.
The FSA has struck a formal agreement with RBS's former head of investment banking Johnny Cameron in which it has dropped enforcement action against him after he undertook not to work again in a senior banking role.
Asked about Goodwin and other RBS executives criticised in the FSA's report, Sants said: "In my personal judgement there were a set of failings, over a long period, by the executives of RBS. And in my judgment that means they are not fit to run a regulated institution… these people will not work again in the regulated sector, in my opinion."
He explained that the regulator had taken no formal decision on this as none of those concerned had applied for authorisation. He nevertheless insisted he was confident any such appointment would be blocked.
Sants said that while the legal threshold for incompetence which would trigger enforcement action was very high, it was less so when it came to reviewing an individual's suitability to operate in regulated financial services.
The prime minister earlier this month revealed he had asked the honours committee to examine whether Goodwin could be stripped of his knighthood for bringing RBS to its knees. The bank was rescued with taxpayer funds and is now 82% owned by the state.
Sants also gave a robust defence of his record at the FSA, accusing his predecessor John Tiner of ignoring concerns raised about the lack of expert regulation of British-based investment banks in 2007.
Sants told the Treasury Select Committee he "complained" to Tiner repeatedly about the "silo structure" the former FSA boss had deliberately cultivated.
Until his promotion to chief executive in July 2007, Sants reminded the MPs, this structure meant he had only been responsible for regulating overseas investment banks such as Goldman Sachs, Deutsche Bank and Morgan Stanley.
Despite its aggressive push into investment banking from 2005 until the credit crunch hit in 2007, Royal Bank of Scotland was not supervised by Sants and his team. Instead, RBS was regulated as a retail bank by his colleague Clive Briault.
Sants said his investment bank supervisory team "had considerable expertise and they were not able to share that with regulators in the UK banks department".
Sants said he had expressed his views about "weak management" in Briault's division at regular meetings with Tiner, but the then FSA boss had told him he was happy with the structure as it was. Sants recalled: "We were not encouraged to question or debate across the silos. The chief executive did not encourage any discussion."
One MP said this was astonishing, to which Sants replied: "I agree with you." Another member of the committee suggested Sants was "dumping on your predecessor" in an effort to avoid responsibility. Sants denied this.
As soon as he was promoted to FSA chief executive in July 2007, Sants claimed he set about a radical overhaul of the regulators' structure. "If you are an integrated regulator, it doesn't make sense not to have an integrated structure," he told MPs. He further claimed to have "asked for the resignation" of Briault "as soon as possible". The FSA chief executive suggested the regulators could possibly have intervened to stop RBS's ill-fated acquisition of part of Dutch rival ABN Amro in 2007, but after he became chief executive such a move was impossible.
Even at the eleventh hour, Sants credited himself for "having the guts to consider" the risks involved in the takeover. By the time he was leading the FSA, however, a review of the deal found there were not sufficient legal grounds to step in.
Also giving evidence to the select committee was FSA chairman Lord Turner. He noted that although the report into RBS was extensive – and was likely to be followed by a similar report into HBOS – it was a good way short of the kind of comprehensive report into the 2008 banking crisis that had been conducted by the US Financial Crisis Inquiry Commission. He said: "You could argue, winding the clock back, we ought to have had a Royal Commission."
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