The failures occurred between occurred between 29 September 2008 and 2 October 2008, when the bank did not give proper consideration to or properly monitor a special financing arrangement with its parent company in Iceland under which it could draw up to £1bn at short notice if it needed to.
It was subsequently put into administration on 8 October 2008.
The FSA said KSFL had assumed it could rely on receiving a £1bn ‘Liquidity Transformation Arrangement’, if needed, without testing that assumption.
In addition, when it started to have concerns about this liquidity arrangement, it failed to discuss these concerns with the FSA in a timely manner.
Although these failures did not contribute to the insolvency of the bank, the FSA said it considers them to be serious as they occurred at a time when the regulator was particularly concerned to ensure it was fully informed about all banks’ liquidity.
Following the end of the investigation, the former CEO, chairman and a non-executive director of KSFL have provided undertakings to the FSA that they will not perform any significant influence functions requiring the approval of the FSA at any UK authorised firms for a period of five years from 8 October 2008.
Despite this, the FSA has not made any findings of regulatory breach against them and they have not made any admissions.