Watchdog on warpath after Northern Rock pair David Baker and Richard Barclay fined

FURTHER cases are expected to be brought against senior bankers following the fining and barring of two former Northern Rock executives by the City watchdog.

The Financial Services Authority (FSA) yesterday said the action taken against former deputy chief executive David Baker and former managing credit director Richard Barclay for misreporting mortgage arrears would send a "loud and clear message" that it was serious about taking action against senior directors where necessary.

Baker, who earned some 900,000 in his last full year in his post, was fined 504,000 and banned from "performing any function in relation to any regulated activity".

Barclay was fined 140,000 and prohibited from holding any senior post in the industry.

Although their misconduct was not directly linked to the collapse of Northern Rock, the extensive investigations into what went wrong following it led to the action being taken by the FSA.

Patrick Brandt, a financial services partner at law firm Dundas & Wilson, said the high-profile cases were evidence of the watchdog's policy of "credible deterrence".

"Its chief executive Hector Sants warned last year that people should 'be afraid' of the FSA and this is a demonstration of that," he said. "I also suspect this will flush others out and that more potential cases will be reported to the FSA."

Chris Hulme of the Northern Rock Shareholder Action Group, which is seeking compensation for investors over the bank's collapse and nationalisation, said the development would lend weight to the view that shareholders "have been treated very unfairly".

He also said the issues at the heart of the FSA action against the two executives over inaccurate information may have similarities with those surrounding the controversial rights issues at RBS prior to the government taking a majority stake.

Both Baker and Barclay admitted the misconduct and were given a 30 per cent discount for early settlement.

The regulator said that, despite becoming aware at the beginning of 2007 that there were 1,917 loans omitted from the mortgage arrears figures, Baker did not pass on the information and "agreed a course of action which resulted in the loans not being reported".

The FSA said Northern Rock's mortgage arrears figures would have increased 50 per cent had they been amended to include the extra loans. It added that Baker's role included internal and external reporting at Northern Rock.

"He also made misleading statements regarding these impaired loans to external stakeholders, including market analysts, quoting inaccurate figures," the FSA said.

Barclay was managing director of the debt management unit and responsible for providing accurate information about loan arrears and property possessions.

The FSA said he knew the firm's arrears position was an important tool for the lender's senior management, analysts and the watchdog to form a view of its asset quality, but did not ensure the figures reported were accurate "despite warning signs at an early stage".

While the FSA said it was not possible to calculate the exact extent of the misreporting, it believed the correct arrears figures would have been "significantly worse. In a statement, Baker said his decision and timing over reporting issues was "made with the best of intentions" and insisted the move was intended to "resolve and not hide" the error.