POOR management decisions and the last Labour government’s light-touch regulatory regime were key factors in the near-collapse of Royal Bank of Scotland, according to a long-awaited report by the City watchdog.

The Financial Services Authority (FSA) highlighted deficiencies in the management, governance and culture at RBS and said that the deal which effectively broke the bank – the £50bn takeover of Dutch bank ABN Amro – was carried out with inadequate due diligence.

However, it also highlighted its own shortcomings in the lead-up to the collapse, saying it operated a flawed supervisory approach which failed to challenge the management of RBS.

It added: “This approach reflected widely held, but mistaken assumptions about the stability of financial systems and existed against a backdrop of political pressures for a ‘light touch’ regulatory regime.”

The FSA identified six key factors in the failure of RBS, most significantly its weak capital position and over-reliance on risky short-term funding in wholesale markets.

In terms of the ABN Amro acquisition in April, 2007, the FSA said RBS proceeded without appropriate heed to the risks involved and that its due diligence amounted to “two lever-arch folders and a CD”.

The FSA said another key factor in explaining the bank’s demise was the management, led by chief executive Sir Fred Goodwin.

The regulator’s report said “there are likely to have been underlying deficiencies in RBS management, governance and culture”.