Darling rejected MSP's concerns over Crosby

CONCERNS about Sir James Crosby's credibility as a government financial adviser were dismissed by the Chancellor almost four months before he was finally forced to quit the Financial Services Authority last week.

Scotland on Sunday can reveal that Alistair Darling insisted Crosby was "well qualified" for the job when first asked whether he was an unsuitable appointment as deputy chairman of the FSA, the Government's financial regulator.

The Chancellor gave his backing to Crosby, a close ally of Gordon Brown, in October, after Margo MacDonald, the independent MSP, suggested he should resign.

MacDonald called on him to quit in September, long before last week's damaging controversy that saw him leave the FSA. Crosby finally departed last week after it was revealed that in his previous job as an HBOS executive he had fired the whistleblower Paul Moore, who raised concerns about the way the bank was being run.

His resignation was embarrassing for the Prime Minister, who appointed him to the FSA and knighted him.

But in September, MacDonald questioned whether Crosby's behaviour as an HBOS executive made him the right person to head up an FSA investigation into the housing market.

MacDonald wrote to Darling and raised her concerns in September last year. She sent the letter after Crosby had been appointed by the Chancellor to investigate the mortgage market.

MacDonald pointed out that Crosby was once the HBOS executive with responsibility for HBOS's highly controversial mortgage business model.

In her letter, she wrote: "As was the practice in the American sub-prime market, HBOS borrowers accessed mortgages that were too big for them to service, a practice that departed from the traditional prudence governing mortgage lending, that was judged to be unsound, if not reckless, by the management of other banks that have subsequently avoided the trauma experienced by HBOS."

She added: "I am concerned that you should have chosen Sir James Crosby to investigate the housing market, adversely affected by the policy pursued by HBOS during his tenure as CEO. In the interests of transparency, to say nothing of the stability of the housing market during the present economic difficulties, should you not consider asking Sir James Crosby to tender his resignation from this investigation?"

Darling replied on October 22, telling her: "I believe Sir James is well qualified to offer advice here and I shall publish his recommendations in due course."

Yesterday MacDonald said: "I knew nothing about Paul Moore at the time I wrote to Alistair Darling. But my common sense told me that Sir James Crosby would lack credibility in a role reviewing the mortgage and housing market.

"Sir James's resignation, after being described as well qualified by the Chancellor, certainly doesn't say much for the Chancellor's judgment."

Last week, claims about Crosby's time at HBOS were also a factor in his quitting as deputy chairman of the FSA, a job he took after leaving the bank in 2006.

Crosby resigned after Moore, the former HBOS head of risk, made a written statement to MPs on the all-party Treasury Select Committee on Tuesday.

Moore alleged he was sacked as head of risk at HBOS in 2005 after warning that Sir James was leading the bank "to the precipice" and that expansion was "going too fast".

Crosby said Moore's original claims had been investigated independently at the time by KPMG and had "no substance".

Following Crosby's resignation, MacDonald has now written to Alex Salmond calling on him to order a judicial review into the work carried out by Crosby when he was at the FSA.

In her letter to the First Minister, she said: "Can I ask you to investigate the appropriate means of scrutinising the business and operations of the FSA under the deputy chairmanship of Sir James Crosby?"