In recent days it has emerged that despite the FSA warning collapsed building society, Dunfermline, repeatedly over five years about its increased reliance on risky specialised lending, no action was taken to stop it.
The FSA has stated that it expressed concern about Dunfermline increasing its commercial property book five-fold to £628 million between 2004 and 2008.
However, the building society was allowed to buy mortgage books from Lehman Brothers and GMAC worth £467 million and continue issuing buy-to-let, self certification and commercial loans.
The regulator only stepped in to stop Dunfermline in the autumn of 2007 when it tried to acquire an £160 million mortgage book from Credit Suisse.
The FSA’s inability to prevent Dunfermline from following its dangerous investment decisions has supported the claims of a whistleblower who said that the regulator showed an attitude of “apathy and complacency” towards regulating building societies.
The whistleblower – an unnamed former supervisor in the FSA’s retail firms division – wrote to Liberal Democrat Treasury spokesman, Vince Cable, claiming that when concerns arose, management would do little more than write a general letter to the chief executive, advising proper due diligence.
Credit rating agency Moody’s has since downgraded the debt of nine British building societies amid fears that the societies did not have enough capital to absorb losses from specialist loan books.
According to data from accountants KPMG, seven of the top fifteen mutuals increased their commercial property books by 15% or more between 2006 and 2007.
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