The Financial Services Authority’s internal audit of its supervision of Northern Rock has criticised the decision to hand oversight for the UK lender to an insurance-focused team for the majority of the period leading up to its liquidity crisis last summer.

The FSA’s internal audit division, which analysed the regulator’s scrutiny of the Rock from January 2005 to August last year, said in the full copy of the report, of which an abridged version was published last month: “The initial location of Northern Rock within a predominantly insurance-focused department was not helpful as the supervisory team did not have the benefit of seeing issues emerging at peer firms.”