Whistleblower claims FSA ignored alert over building societies
Susan Thompson

The Financial Services Authority was accused last night by one of its former supervisors of complacency in its past regulation of building societies.

The unnamed whistleblower, who approached Vince Cable, the Liberal Democrats Treasury spokesman, said that the FSA ignored a warning three years ago that risky self-certified loans had been packaged and sold to building societies that thought they were conventional loans.

Mr Cable has written to Lord Turner of Ecchinswell, the FSA chairman, asking him to investigate. “This man experienced first hand the appallingly bad job the FSA did of supervising the building societies,” Mr Cable told The Times last night. The accusations come days after Moody’s, the credit ratings agency, downgraded nine of Britain’s biggest building societies.

On Wednesday, Marjan Riggi, Moody’s lead analyst for UK mortgage lenders, said that the action had been taken after stress-testing scenarios that incorporated a peak-to-trough decline in house prices of 40 per cent. Some building societies have been downgraded by three notches, making it more expensive for them to raise funding in the wholesale markets.

Moody’s downgraded Nationwide, Chelsea Building Society, West Bromwich, Principality, Newcastle, Skipton, Yorkshire, Norwich & Peterborough and Coventry. Some are considering challenging their ratings with Moody’s.

The former FSA supervisor said that building societies had taken on greater risks by getting into specialised lending, according to The Financial Times, such as sub-prime, self-certified and buy-to-let lending.

Mr Cable said that together with the accusations of the whistleblower, Moody’s credit rating cuts highlighted the “serious problems” within the building society sector.

The FSA was not immediately available for comment.