FSA boss admits errors in HBOS regulation

By Olesya Dimitracova and John Bowker

LONDON (Reuters) - The chairman of the Financial Services Authority (FSA), Adair Turner, said on Wednesday he believed that the way it regulated banks such as HBOS HBOS.L before its near collapse last year was wrong.

"We were supervising people like HBOS within a particular philosophy of the way you do regulation, which I think in retrospect was wrong," he told a cross-party group of British members of parliament.

He said changes were underway at the FSA to improve the way it approached regulation, and that the body would be "fit for purpose" when the modernisation was complete.

"It was not the function of the regulator to cast questions over overall business strategy of the institutions ... You may find that surprising," he added, saying there was pressure in the UK, before the extent of the financial crisis was known, for regulators to be more "light touch".

"All the pressure on the FSA was to say why are you being so heavy and intrusive? Can't you make your regulation more light touch?" he said.

HBOS was taken over by rival Lloyds TSB (LLOY.L) to save it from collapse last autumn, while other banks such as Royal Bank of Scotland (RBS.L) are now majority owned by the government.

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FSA Chief Executive Hector Sants told the same committee that the regulator would now play a greater role in the appointment of senior bankers.