Third arrears fine in Northern Rock case

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 misreporting 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.

Margaret Cole, FSA director of enforcement and financial crime, said the fine, imposed on Tuesday, sent "a message" to the industry.

The FSA has not taken any action against ex-Northern Rock boss Adam Applegarth in relation to this case.

It said there was "no evidence to suggest" that the former chief executive knew about the misreporting of mortgage arrears figures.

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 and knew the information was being used in internal and external communications.

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 per cent, 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 per cent, to a rate of 0.68 per cent. And possession figures would have increased by around 300 per cent.

According to its report, the decision to hide the arrears cases was first taken in 2005 at a time when the number was minimal.

But the number swelled in the first half of 2006 – a year when Northern Rock's mortgage business was booming.

By the end of 2006, Northern Rock had grown to become the fifth-largest UK mortgage lender, with 8.3 per cent of the residential lending market.

The Newcastle-based lender was nationalised in early 2008 after it was forced to seek emergency funding from the Bank of England and suffered the first run on a UK bank for 150 years.

Ms Cole said of the fine announcement: "This is a message to all FSA-approved persons, that they must take their individual responsibilities seriously at all times, or suffer the consequences."

Mr Jones's fine was reduced by 20 per cent for settling early – otherwise, he would have faced a 400,000 fine.

He has 28 days from Tuesday to pay the penalty.

Northern Rock said: "The investigation related to a period before the company entered public ownership. The company is not subject to any sanction from the FSA as a result of this investigation."