Hector Sants, chief executive at the Financial Services Authority (FSA), admitted today that sharpening up the work of the City regulator in the wake of the Northern Rock debacle would mean that it would break its expenditure targets for the next financial year.

The admission came as Mr Sants, whose operation was accused by MPs of being "asleep at the wheel" in its supervision of the now-nationalised mortgage lender, insisted that the lessons had been learned from the bank's near collapse.

Mr Sants used the FSA's annual meeting today to apologise again for failures of oversight.

He said the FSA regretted its actions and had admitted that its level of supervision was unacceptable.

He said the regulator's scathing internal report, published earlier this year, "sets out clearly what we have to do".

It includes putting in place a "minimum supervisory resource" for all firms that would have a "high impact" on customers and markets if they ran into difficulties.

"We have already made many of the necessary changes, and we will complete our supervisory enhancement programme by the end of the year," he said.

"It will lead to increased costs and we are thus likely to exceed the levels of expenditure shown in the Business Plan for 2008/09, which will also have consequences for next year," Mr Sants told the annual meeting.

In a series of bruising public appraisals, including with MPs on the Treasury Select Committee, the FSA has been fiercely criticised for failing to act on problems at the North East lender.

Northern Rock was forced to seek emergency funding from the Bank of England last September after the wholesale markets closed down last summer in the wake of the meltdown in the American mortgage market.

The Bank of England and the Treasury, which were also responsible for preventing Northern Rock collapse, were also criticised but to a lesser degree.

Clive Briault, managing director of the FSA's retail business unit, and Sir John Gieve, an FSA board member and deputy governor of the Bank of England, have both fallen on their swords in the wake of the events surrounding Northern Rock. SIr John, who is responsible for financial stability at the Bank, will leave next year.

However, Mr Sants said that the FSA had recorded achievements during the past 12 months and to dwell solely on Northern Rock would present a "distorted picture".

He said the regulator had delivered results on its policy agenda, including the introduction of Solvency II — new rules for insurers — and the Markets in Financial Instruments Directive.

The FSA has also been praised by investors for its attempts to stem the activities of aggressive short-sellers that target companies carrying out rights issues.

Times Recommends

• Lenders face huge hit on mortgage fraud
• Mortgage rescue fund at the ready
• Zoom airline collapses and halts all flights