UK to ask Adair Turner to restore FSA reputation

LONDON, May 27 (Reuters) - Adair Turner is set to be named chairman of Britain's Financial Services Authority within weeks, taking the helm a year after the near-collapse of mortgage bank Northern Rock, the biggest crisis since the watchdog's creation.

Turner -- a high-profile former director-general of the Confederation of British Industry (CBI) and now the government's climate change tsar -- is the front runner in the race for the top job. His appointment is due to be approved next month, people familiar with the matter said.

"An announcement on the FSA position will be made in due course," a spokeswoman at the Treasury, responsible for appointing the FSA's chairman, said on Tuesday. Turner and the FSA declined to comment.

If the appointment is confirmed, the former McKinsey management consultant, who became head of the CBI in 1995, will replace Callum McCarthy who retires in September.

Turner will be taking on the job as the FSA wrestles with the challenge of rebuilding a tarnished reputation.

The debacle at Britain's fifth-largest mortgage lender left the FSA, in charge of policing UK banks, facing a crisis of confidence and its biggest test since it was set up eight years ago. It has been accused by politicians and business of failing to do enough to prevent the first run on a UK bank in over a century.

The government was eventually forced to nationalise Northern Rock this year, an embarrassing and politically damaging move.

"The FSA is a slightly bruised animal for obvious reasons, so just re-establishing its credibility and its pre-eminence needs someone with the right level of ability and standing," one observer at a regulated firm said.

Turner, who will be only the second person to take the standalone position of chairman at the FSA, will also have to prove a deft negotiator, manoeuvring through changes to Britain's "tripartite" regulatory system, through which the watchdog monitors the financial sector alongside the Bank of England and the Treasury.

Turner, who also spent time at investment bank Merrill Lynch MER.N, is widely regarded as representing an adequate mix of sector and business expertise and political nous, having also led a high-profile government inquiry into pensions.

"It is going to take someone pretty robust," a lawyer at one top City regulatory practice said. "There is going to be quite a lot of tension between the FSA and the industry when business starts to be generated again, so they are going to need a robust chairman and robustly led regulator to curb the excesses."

Turner was named head of the UK government's new Committee on Climate Change earlier this year, but is reported to want to twin that position with the three-day-a-week job at the FSA. It is not yet clear whether he will be able to retain both roles.

Turner would work with Chief Executive Hector Sants, a former banker who took the job last summer and who is responsible for the day-to-day running of the regulator.

(Reporting by Clara Ferreira-Marques and Christina Fincher; Additional reporting by Jeremy Lovell; editing by Elaine Hardcastle)