FSA: Lessons will be learned

The UK's financial watchdog says it will "strengthen financial stability" after admitting it failed to properly supervise Northern Rock.

An internal review of the Financial Services Authority's (FSA) supervision of the collapsed lender has found a lack of sufficient engagement with the firm and poor "intensity" in its efforts to utilise all available risk information.

Hector Sants, the FSA's chief executive, says the watchdog's supervision of Northern Rock "was not carried out to a standard that is acceptable".

He claims it is "impossible to judge" whether better regulation would have prevented the run on Northern Rock, however.

"Demonstrating our willingness to examine ourselves critically and learn lessons is central to giving the financial services industry and consumers confidence in the FSA, although, like any organisation, we cannot and do not claim infallibility, and we cannot, and should not, attempt to remove all risk from the system," he said.

The FSA's report outlines a number of measures to improve its processes, including more senior management time with "high-impact firms", an increase in the "rigour" of "day-to-day" supervision and a strengthening of its supervisory resources.

Its internal audit director, Rosemary Hilary, said: "Our recommendations are designed to ensure that the framework is properly applied, with good record-keeping, good information flows, the appropriate levels of challenge and the right amount of engagement and supervision of front-line staff by management."