FSA censures former Kaupthing Singer and Friedlander
THE Financial Services Authority has censured the former Icelandic bank Kaupthing Singer and Friedlander Ltd, which had offices in Birmingham and Leeds, for breaching regulatory guidelines.
The FSA said the bank, the UK arm of Icelandic banking group Kaupthing Bank, had failed to conduct its business with due skill, care and diligence and it had therefore issued it with a Final Notice.
The watchdog said following an investigation into the collapsed KSFL, the bank was found to be in breach of one of the FSA’s regulatory principles; specifically, between September 29 and October 2, 2008, it said KSFL had breached Principle 2 of the FSA’s Principles for Businesses because it failed to consider promptly and properly whether liquidity stresses in the parent group in Iceland would have a detrimental effect on its own liquidity position.
In a statement, the FSA said: “The Final Notice outlines how KSFL did not give proper consideration to, or properly monitor, a special financing arrangement with its parent company in Iceland, under which it could draw up to £1bn at short notice.
“KSFL assumed it could rely on receiving this £1bn ‘Liquidity Transformation Arrangement’, if needed, without testing that assumption. In addition, when it started to have concerns about this liquidity arrangement, it failed to discuss these concerns with the FSA in a timely manner.”
The FSA said it was publishing the notice to ensure that other regulated firms understood the importance of complying with the FSA’s liquidity guidelines and that where compliance was dependent on liquidity arrangements with a parent company, the ability to exercise these arrangements was rigorously tested rather than assumed.
It added that while the ultimate insolvency of KSFL could not be attributed to the failure to monitor promptly and properly the Liquidity Transformation Arrangement, the FSA considered KSFL’s failings to be serious as they occurred at a critical period for the financial markets and at a time when the FSA was particularly concerned to ensure it was fully informed about all banks’ liquidity.
The FSA was responsible for regulating KSFL prior to the failure of its Icelandic parent. The UK subsidiary was placed into administration on October 8, 2008.
After the UK subsidiary was placed into administration, the FSA started an investigation into the conduct of KSFL and its senior management during the period immediately leading up to the bank’s failure.
In particular, it considered KSFL’s liquidity management in the context of its relationship with its Icelandic parent.
The FSA said it did not investigate the wider issues around the solvency of the parent group or the group as a whole, as the bodies were not regulated by it.
Following its investigation, Sigurdur Einarsson the former non-executive chairman of KSFL, Hreidar Mar Sigurdsson former non-executive director of KSFL and Armann Thorvaldsson the former CEO of KSFL have agreed not perform “any significant influence functions requiring the approval of the FSA at any UK authorised firms for a period of five years from October 8, 2008”.
