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FSA hit out with third fine in Northern Rock debacle

The city regulator handed out its third and final fine yesterday under an inquiry into staff manipulation of mortgage arrears figures at Northern Rock in the run-up to its collapse.

Northern Rock's former finance chief David Jones was ordered to pay £320,000 by the City regulator, and banned from working in any regulated activity, for the part he played in the mis-reporting of mortgage arrears figures.

The Financial Services Authority (FSA) has already imposed two hefty penalties since uncovering the data manipulation.

Northern Rock's previous deputy chief executive David Baker was fined £504,000 in April, and Richard Barclay, former managing credit director at the bank, was hit with a £140,000 penalty after the FSA found them involved in the misreporting of mortgage data.

The FSA discovered that false mortgage arrears and possession figures had been reported before the bank's nationalisation, which resulted in shareholders and analysts being misled.

Mr Jones - who quit the asset management side of the company in April - agreed with Mr Baker to allow false mortgage arrears figures to appear alongside the 2006 annual accounts , and continued to misreport data for nearly a year, according to the FSA.

The FSA investigation into mortgage figures did not relate directly to the bank's collapse into public ownership, but did reveal that the three senior executives effectively hid more than 1,900 mortgages in arrears in the months before the bank failed.

Its report said staff at the lender felt "under pressure" to produce attractive arrears figures, which Northern then boasted about in reports to investors.

The FSA said that while Mr Jones was not responsible for manipulating the figures, he was made aware of the data omission by Mr Baker in January 2007, but failed to correct the mistake.

Mr Applegarth was also not told of the omission.

At the time, Northern Rock said its rate of mortgage loans more than three months in arrears was 0.42%, under half the industry average. But the FSA found that had the hidden mortgages been included in the figure, it would have increased by around 50%, to a rate of 0.68%.