Regulator accused of complacency

The FSA is accused of letting societies expand into "dangerous" areas

The Financial Services Authority (FSA) has been accused of complacency in its dealings with building societies.

Liberal Democrat Treasury spokesman Vince Cable has asked FSA chairman Lord Turner to investigate the accusation made by a former FSA supervisor.

Poorly qualified FSA officials allowed building societies to expand into risky areas, he had told Mr Cable.

But the FSA said the description of its approach to the regulation of societies "bears no relation to reality".

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The FSA added that these days its regulatory approach was more focused on firms' business operations than it had been in the run-up to 2007.

'Widespread' problems

The former FSA supervisor had warned Mr Cable that more building societies could be at risk in the wake of the collapse of the Dunfermline Building Society.

"This informant is basically telling me that the problems are much more widespread and difficult," Mr Cable told the BBC.

Earlier this week, credit ratings agency Moody's downgraded nine UK building societies, amid fears of rising bad debts.

Concerns about the societies' health have been raised with Lord Turner

"The points he [the informant] was making were that the people in the Financial Services Authority, who should have been keeping a close eye on it... had no background in the industry and didn't understand it and didn't understand its community roots or its limitations," Mr Cable said.

In spite of this, the former FSA supervisor told Mr Cable they had "allowed, or indeed encouraged, them to get involved in expansion, dealing in commercial property, for example, that were beyond them and dangerous".

Some building societies had invested in financial products that contained bundled mortgages, without fully understanding that they also included risky self-certified loans, the whistleblower told Mr Cable.

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