THE City watchdog has been accused of serious misjudgment in its failure to step in and block Royal Bank of Scotland’s disastrous takeover of Dutch rival ABM Amro.

A report by MPs on the Treasury Select Committee slammed the Financial Services Authority (FSA) for the part it played in the failure of RBS, which saw the taxpayer stump up £45.5bn to prevent it from collapse.

The committee said the FSA’s biggest fault was not intervening to stop the calamitous near-£50bn ABN takeover and is urging the Government to legislate to ensure the regulator is explicitly required to approve major bank acquisitions to prevent a repeat of the fateful deal.

The FSA comes under widespread criticism in the report into the collapse of RBS, saying its failures in the saga “amount to a serious indictment of bosses at the bank and the regulator”.

The committee also hit out at the FSA for needing to be strong-armed into producing a report into RBS, which was published last December.

The FSA originally decided not to produce a report into the RBS collapse until bowing to Parliamentary pressure.

But the committee found the FSA’s report did give a fair picture of events surrounding the failure and bail-out.

An FSA spokesman said the regulator would consider the report’s findings and recommendations in detail, adding the FSA had put in place a completely new model of supervision since the financial crisis.

The report said the FSA’s inaction throughout the RBS takeover of ABN “reflects a grave weakness in the corporate governance of the FSA”.