The City watchdog said today that it had fined the former Northern Rock deputy chief executive for 'misreporting' mortgage arrears figures.
David Baker, who held the senior position at the now UK state-owned lender between January 2004 and March 2008, was fined £504,000 sterling by the Financial Services Authority and banned from 'performing any function in relation to any regulated activity'.
The regulator said that, despite becoming aware at the beginning of 2007 that there were 1,917 loans omitted from the mortgage arrears figures, Mr Baker did not pass on the information internally and 'agreed a course of action which resulted in the loans not being reported'.
Northern Rock's former managing credit director, Richard Barclay, was also fined £140,000 and banned from performing 'any significant influence function' at an FSA-regulated firm.
Both men admitted the misconduct and were given a 30% discount for early settlement.
The FSA said Northern Rock's mortgage arrears figures would have increased 50% had they been amended to include the extra loans. It said that, if they had been added to the properties in possession, those figures would have increased from 662 to 2,579 cases.
The FSA said Mr Baker's role included accurate 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.
It added that, for much of his time at the company, Mr Baker also had overall responsibility for its debt management unit (DMU), which managed the secured loan book.
In its annual figures published in January 2007, Northern said credit quality had been robust throughout the previous year and boasted that its proportion of mortgage accounts three months or more in arrears - at 0.42% - was under half of the industry average.
Mr Barclay was managing credit director of the DMU and directly 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 FSA 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 and closer to the Council of Mortgage Lenders' average over an extended period of time'.
