UK committee calls for M&A powers for PRA

An influential UK parliamentary body has called on the government to hand the Prudential Regulatory Authority, which is set to replace the Financial Services Authority next year as a key UK financial regulator, an explicit legislative mandate to approve major bank mergers and acquisitions.

The Treasury Committee, which is led by chairman Andrew Tyrie MP, on Friday recommended the government "include an explicit requirement for the Prudential Regulatory Authority to approve major bank acquisitions and mergers in forthcoming legislation”.

   It recommended the UK Treasury, “working with the relevant public bodies, report on the legislative or other changes it proposes to make to the current regime regulating acquisitions in the banking sector".

   The committee made its recommendation in a report that scrutinised another investigation, which was carried out by the FSA last December, into the failure of the Royal Bank of Scotland in late 2008. The FSA is set to be effectively split early next year to form the Financial Conduct Authority and the PRA, which will be a part of the Bank of England.

   That FSA carried out its investigation into the failure of RBS after the UK bank required a bailout by the UK government following its ruinous multi-billion euro takeover of Dutch bank ABN Amro in mid-2007.

   In the FSA’s report, it cited a number of factors that led to the failure of RBS. These included significant weaknesses in its capital position; over-reliance on short-term wholesale funding and the ABN Amro acquisition on the basis of inadequate due diligence. The FSA also said it realised that on large mergers and acquisitions, extra resources should have been made available by the regulator to scrutinise the deal.

   The Treasury Committee today also criticised the FSA’s handling of the RBS acquisition of ABN Amro. "The FSA should have intervened at an early stage,” the report said.

   “It should and could have intervened at a late stage, albeit with more difficulty. We need a regulator with the self-confidence to intervene, even if it might cause some destabilisation in the short term."

   The committee also noted the FSA's original decision in December 2010 not to publish a full report on the demise of RBS, before relenting. Tyrie noted that "without persistent pressure" from the committee, the FSA's report "would never have been published". He added: "We now have a comprehensive report that gives a better idea of what went wrong at both RBS and the FSA."

           

   The committee found that the FSA's initial belief that a brief statement on RBS's failure would suffice "reflects serious flaws in the culture and governance of the regulator. It also reflects a fundamental misunderstanding of its duty to account for its actions to the public and Parliament".

   The Treasury Committee report also expressed "considerable surprise" about the fact that nobody apart from the bank's former chairman of global banking and markets, Johnny Cameron, has been held "meaningfully accountable" for the bank's failure.

   The FSA said in May 2010 it would not be taking disciplinary action against Cameron as part of an agreement under which he would be barred from working full-time in the financial sector or from holding a position of significant influence, but would be able to take on part-time consultancy work.

  The publication of the committee's own report comes as the UK draws closer to the implementation of a new regulatory set-up early next year that will see the FSA dismantles and effectively split into two new bodies, the PRA, which will be a part of the Bank of England, and the Financial Conduct Authority.