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Failed Icelandic bank Kaupthing should never have been allowed to take over London-based Singer & Friedlander in 2005, it has been claimed.
Former Singer boss Tony Shearer has said that he raised concerns with the Financial Services Authority (FSA) three years before Kaupthing collapsed.
He said the FSA rushed through approval of the deal despite a belief shared by himself and colleagues that "Kaupthing and its management ... were not fit and proper people to control a UK bank."
He said: "I believe that the FSA had sufficient information about Kaupthing that they should never have approved the change of control, and if they were to do so they should have made extensive further inquiries."
He was giving written evidence to the Commons Treasury Select Committee, which is investigating the exposure of UK investors to foreign banking crises.
The FSA rejected Mr Shearer's account of events. It said: "In such circumstances, the FSA always conducts 'change of control' checks, and only approves the change if we are satisfied our requirements will be met."
The committee will also question representatives of councils and charities that had investments in the failed institution.
Chancellor Alistair Darling is to be questioned by the House of Lords Economic Affairs Committee about the current state of the economy.
In a statement on Monday night, the FSA rejected Mr Shearer's account of events in 2005.
"It would be our usual practice to talk to the directors of a financial institution going through a 'change of control', ie when an authorised firm is acquired by another," it said.
"In such circumstances the FSA always conducts 'change of control' checks and only approves the change if we are satisfied our requirements will be met.
"It is not our practice to discuss individual firms but, in this instance, we do not believe the statement made to the Treasury Select Committee represents an accurate summary of the events."
The Financial Services Compensation Scheme (FSCS) has been paying out some £500 million to thousands of UK investors who were caught up in Kaupthing's collapse.
Copyright © Press Association 2009
