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Whistleblower attacks FSA over building societies
Whistleblower attacks FSA over building societies
Friday, 17 Apr 2009 11:22
The Financial Services Authority "turned a blind eye" to building societies taking on toxic debt leading to the collapse of Dunfermline, according to a whistleblower.
Vince Cable, shadow chancellor for the Liberal Democrats, revealed the accusations in a letter sent to him by a whistleblower who worked for the Financial Services Authority (FSA), and published in the Financial Times.
The whistleblower, who remains anonymous, said building societies have become "highly vulnerable" in recent years as they abandoned their old model of taking retail deposits to fund lending, and moved into riskier areas such as subprime and self-certification mortgages.
Many were buying loans from other institutions with no real understanding of what they were taking on, the former FSA employee said.
"I witnessed trusting and naive provincial building society executives and nonexecutives, who had no real understanding of securitisation or structured finance or any other aspect of the workings of global capital markets, being eaten alive by cynical, rapacious and short-termist investment bankers."
The whistleblower also named three other building societies that are facing the same problems as Dunfermline.
The whistleblower alleges the FSA carried out thematic reviews in 2005 and 2006 into mortgage books purchased by building societies from wholesale lenders.
One book is said to have contained several thousand loans with no proof of the borrowers' income, while "incontrovertible proof" was found that societies had been paying high prices for what they thought were the safest residential mortgages, but were in fact risky selfcertification loans.
"FSA management turned a blind eye to that particular abuse, as it did to many others," the whistleblower said.
The lender who sold the loans was not reprimanded, and the societies involved were not directly warned, it is alleged.
"It is worrying in itself that people who wish to act in the public interest should feel that there is a climate of fear and vindictiveness in the FSA," Mr Cable said.
A spokesperson for the FSA said the regulator will be replying to Mr Cable. The spokesperson added that the FSA did not focus on supervising the business model of firms in 2007, but has since reviewed this strategy.
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