Brown faces flak in damning RBS report

The UK’s leading financial regulator will take a swipe at Gordon Brown, the former prime minister, as it reveals a catalogue of errors relating to the catastrophic failure of Royal Bank of Scotland.

In a long-awaited report into the events that took one of the world’s largest banks to the brink of collapse three years ago, the Financial Services Authority will on Monday pin part of the blame on the “light-touch” regulatory regime it inherited from the Labour government, according to people who have seen the report.

The criticism will be part of a barrage of self-abuse from the FSA as it attempts to explain why it failed to spot the huge risks in RBS’s disastrous acquisition of the Dutch bank, ABN Amro, which precipitated the bank’s £45bn government rescue.

In a near 500-page report due to be published early on Monday morning, the regulator will also launch a damning critique of RBS’s former management, led by Sir Fred Goodwin, the vilified former chief executive and Johnny Cameron, who used to head the investment banking division.

However, in a move that could antagonise public anger against the banks, the final report is not expected to throw up fresh allegations against any of the former directors it mentions. So far only Mr Cameron has been formally disciplined by the regulator.

Its language has also been repeatedly watered down after the individuals involved fought a tough battle to remove some of the most inflammatory comments, including an allegation that RBS bosses took a risky gamble when buying ABN.

In what is expected to be a colourful – rather than a forensic – account of one of the biggest ever bank failures, the regulator will delve into the cut-throat culture presided over by Sir Fred.

The report, which is being held deep within the FSA’s Canary Wharf headquarters, is expected to focus on how the investment bank was able to build up such large and risky credit exposures in the run-up to the financial crisis. RBS revealed about £6bn of credit market writedowns in 2008, a year in which it suffered a total net loss of £24bn – the biggest in corporate history.

It will also scrutinise the apparent lack of due diligence of RBS’s hostile takeover of ABN at the end of 2007 – and the benign market conditions that enabled such a huge deal to go through with little regard for appropriate capital buffers.

After a series of delays, Monday’s publication of the report should draw a line under what has been an embarrassing episode for the FSA. Initially the regulator announced it had terminated a 17-month investigation into RBS in a brief 298-word statement last December. At that time it said no criminal or regulatory charges would be brought against Sir Fred or any other former board members – a line it will stick to on Monday.

The closure of the investigation triggered a storm of public and political outrage as the FSA was forced to admit that no comprehensive summary had been prepared, with work scattered across a collection of desks, files and notelets stuck to the computer screens of its staff.

Pressure to release a substantive report mounted further when Lord Turner, the FSA’s chairman, suggested in the Financial Times that a full account of the bank’s collapse would “add little” to the public’s understanding of what went wrong.

Just a week later, the FSA reversed tack and said it would commission a special report into not only the senior management failings that ultimately sunk RBS, but its own botched oversight of the bank – and in particular the decision to wave through the acquisition of ABN just months before the near-implosion of the global financial system.

In disclosing its findings on Monday, the FSA will lay out a series of recommendations aimed at staving off a repeat bank failure. These are expected to include new powers for regulators to intervene in hostile takeover bids and more responsibility for bank directors to prove they did not act negligently.

In a nod to one of the most controversial aspects of RBS’s near-collapse – the revelation that Sir Fred walked away with a £700,000 annual pension – the FSA is also likely to push for greater powers to strip directors of benefits.

However, people involved with the probe said that while the report contained trenchant criticism of the FSA’s supervisory failings, its recommendations for reform were probably not far-reaching enough to insulate the system from a similar collapse in the future.

Where are they now?

Sir Fred Goodwin

The public may view Sir Fred as the biggest villain in the downfall of the Royal Bank of Scotland but it has long been clear that the all-powerful former chief executive will be exonerated by the Financial Services Authority’s analysis.

His flogging came earlier - when he brazenly accepted a £700,000 annual pension from RBS after he left the debilitated bank in 2008. Sir Fred and his family were forced into hiding after his Edinburgh home was attacked by outraged taxpayers. He eventually gave up a third of his pension entitlement. Sir Fred has since advised RMJM, one of the UK’s biggest architectural practices.

Johnny Cameron

A key architect of RBS’s disastrous purchase of Dutch bank ABN Amro, the former head of investment banking was at the epicentre of its fall from grace. The only former RBS executive to be officially disciplined by the regulator, Mr Cameron agreed never again to take a full-time position in the financial services industry as part of a settlement with the City watchdog last year.

Mr Cameron took early retirement from RBS with a pension pot of £1.3m. He reappeared briefly at Odgers Berndtson but was forced to resign after his appointment lost the headhunting firm a brief from UKFI. He now has his own consultancy firm and is a part-time adviser to Gleacher Shacklock, a boutique City firm.

Sir Tom McKillop

As chairman of RBS from April 2006 to February 2009, Sir Tom had a calamitous tenure that culminated in his signing off on Sir Fred’s controversial pension. He was criticised for failing to temper Sir Fred’s aggressive expansion ambitions, particularly in the hostile bid for ABN Amro. Sir Tom, who was not formally punished by the FSA, later described the purchase of ABN as “a bad mistake”. His role in the bank’s demise also lost him a seat on the board of BP, which he was forced to give up shortly after he left RBS.

Lord Turner

There would probably be no report into the collapse of Royal Bank of Scotland had Lord Turner, the FSA’s chairman, not written in the FT last December that a full account would “add little, if anything, to [public] understanding of what went wrong” at the bank.

The FSA was forced into a reversal a week later, when it agreed to put in motion a fresh investigation. As much as the regulator tries to put a positive gloss on Monday’s report, it has largely been an embarrassing fiasco.

Sir Callum McCarthy

The former chairman of the Financial Services Authority left the regulator in September 2008, a month before the first taxpayer bail-out of Royal Bank of Scotland. Having served only one five-year term, his reputation was battered not only by the FSA’s failure to block RBS’s acquisition of ABN Amro, but the collapse of Northern Rock

He now serves as chairman of the European operations of JC Flowers, the US private equity firm. There, Sir Callum has been heavily involved with Castle Trust, a new mortgage scheme designed to bankroll first-time buyers by taking a slice of future sale profits.

Margaret Cole

Ms Cole, a former white-collar defence lawyer who now serves as the FSA’s head of enforcement, was at the centre of a storm of outrage over the regulator’s decision not to bring criminal charges against Fred Goodwin or any of RBS’s other former directors last December.

In spite of Ms Cole’s attempts to bolster the regulator’s enforcement credibility over the past six years – with mixed success – the RBS investigation was seen by many as proof that the FSA still lacks real teeth to go after City heavyweights.