Today the Financial Services Authority fined David Baker, former deputy chief executive of Northern Rock Plc, £504,000 and Richard Barclay, former managing credit director at Northern Rock, £140,000.
As well as the fine Baker has also been prohibited from performing any function in relation to any regulated activity. And Barclay has been prohibited from performing any significant influence function at an FSA-regulated firm.
Between January 2004 and March 2008, one of 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 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.