FSA fines and bans former Northern Rock deputy

Nia Williams

April 13, 2010

The FSA also fined Richard Barclay, former managing credit director at NR, £140,000, as well as banning him from performing any significant influence function at an FSA-regulated firm.

As deputy chief executive between January 2004 and March 2008 one of David Baker’s responsibilities was accurate internal and external reporting at NR. He had overall responsibility for much of this time for the firm’s debt management unit (DMU) which managed its secured loan book.

Despite becoming aware in January 2007 that there were 1,917 loans omitted from the mortgage arrears figures, Baker failed to escalate the information internally and agreed a course of action which resulted in the loans not being reported.

He also made misleading statements regarding these impaired loans to external stakeholders, including market analysts, quoting inaccurate figures. If the 1,917 loans had been reported as being in arrears, the figures would have increased by approximately 50%. Alternatively if the loans had been reported as in possession, the number would have increased from 662 to 2,579 cases.

As managing credit director of the DMU, Barclay was directly responsible for the provision of accurate management information concerning loan arrears and property possessions.

He knew that the firm’s arrears position enabled senior management within NR, analysts and the FSA to form a view of NR’s asset quality, but failed to ensure that the management information reported by the DMU was accurate despite warning signs at an early stage. Although it is not possible to calculate the exact extent of this mis-reporting, if the correct figure had been reported, the arrears figures would have been significantly worse and closer to the Council of Mortgage Lenders average over an extended period of time.

Margaret Cole, FSA director of enforcement and financial crime, said: “Baker and Barclay both failed to meet the standards we require of senior individuals within FSA-regulated firms. They both held senior positions of trust within the firm but they provided inaccurate information to the Northern Rock board and to the market.

“The fines we have imposed on them leave no doubt that we will take action against individuals who either fail to act with integrity or who fail to perform their roles to a high standard – this is a loud and clear message that we are serious about taking action against senior directors where they step over the line.”

Both Baker and Barclay admitted their misconduct at an early stage and co-operated fully with the FSA. Both therefore received a 30% discount for early settlement. Were it not for this discount, Baker would have been fined £720,000. In addition, Barclay’s fine was reduced on the grounds of hardship. Were it not for these matters Barclay’s fine would have been £300,000.

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