FSA rejects MPs' Dunfermline report and denies any blame

THE City watchdog has refused to accept any blame for the collapse of the Dunfermline Building Society earlier this year.

The Financial Services Authority (FSA) yesterday rejected the conclusions of a report by MPs on the Scottish affairs committee that it had failed in its supervision of the society and that it had, likewise, failed to issue specific warnings to the lender about its higher-risk activities which led to the collapse of Scotland's largest building society in March.

The committee, chaired by the Glasgow Central MP, Mohammad Sarwar, said in July that although the lender's board had "dug the hole", the FSA "failed to provide the necessary level of supervision" and "to issue clear and specific warnings" in its dealings with the Dunfermline.

But the FSA said it had given "numerous specific warnings" in a series of "Dear CEO" letters between March 2003 and May 2008 to the building society sector and had delivered speeches.

"When we give speeches to the industry, we expect firms to take what is said into account," it said.

Its supervisory "Arrow" visit in 2005 raised commercial lending as an issue to the society's management. But it said that in 2007 a follow-up meeting with the society's auditors had given it the belief the building society was "well-controlled". The FSA accused the MPs of producing no facts to back up their charges.

The government's response to the MPs' report, which was also published yesterday, said "the action taken by the authorities was effective and well co-ordinated, resulting in a successful resolution". But Dunfermline MP Willie Rennie branded the government's response "pathetic" and warned the regulator had "failed to follow through" on its warnings to the society's board.

"If they don't admit they didn't identify the problem when it was staring them right in the face, what confidence does it give us now they would be able to spot it again?" said Rennie

"Now they clamp down on everything and nothing gets done in future, because they don't have the skills to identify what is and isn't a problem," he added.

The SNP committee member, Pete Wishart, said: "This report underlines again the failure of the FSA in its duty to protect savers and investors, and these lessons must be learned.

"In the run-up to the takeover by Nationwide, some extraordinarily poor managerial decisions were made at the Dunfermline and the FSA repeatedly failed to intervene. This cannot be allowed to happen again."

The FSA denied it had failed to protect the interests of investors and savers. It said: "No depositor lost money as a result of the collapse of the Dunfermline Building Society."

Wishart said that the "value for money" of the government-backed takeover of the society by Nationwide "has yet to be demonstrated".

• The Conservatives have assembled a working group to advise the party's Treasury team on reforming regulation of financial services.

Among its members is Amanda Harvie, former chief executive of Scottish Financial Enterprise, and Nick Prettejohn, former UK head of Prudential.