The Financial Services Authority (FSA) will this week be accused of “massive regulatory failure” as it prepares to award staff bonuses and pay rises worth up to £33m, writes Robert Watts.

Lord Turner, chairman of the City regulator, and Hector Sants, its chief executive, are to be interrogated on Wednesday as part of the Treasury select committee’s continuing inquiry into the banking system’s woes.

Speaking ahead of the hearing, several members of the committee said the regulatory system had failed adequately to monitor Northern Rock, Royal Bank of Scotland and HBOS.

The so-called tripartite system, which divides responsibilities between the FSA, the Bank of England and the Treasury, was devised by Gordon Brown, then chancellor, in 1997.

Peter Viggers, a Tory member of the committee, said: “It is quite clear the tripartite system was not up to the job. We are talking about a massive regulatory failure and, as far as I am concerned, all roads lead to the FSA.”

Michael Fallon, the Tory deputy chairman of the committee, said: “Brown’s tripartite system has bound the FSA, HM Treasury and the Bank of England together in mystical confusion — this regulatory mess can’t remain.”

Jim Cousins, a Labour member of the committee, said the tripartite system had driven a “wedge” between the FSA and the Bank of England, which was responsible for financial regulation until 1997.

“The FSA has been weak and naive,” Cousins said. “It’s plain there are people at the Bank of England who went into a long sulk after 1997 and were unnecessarily difficult.”

Turner, who joined the FSA last September, has defended his staff’s right to their bonuses, saying to withhold them would amount to a “15% pay cut”.

On Thursday Mervyn King and Paul Tucker, the Bank of England’s governor and new deputy governor, will also be questioned by the select committee.

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