British financial regulators issued a statement Tuesday, following the conclusion of their investigation into the failure of an Icelandic bank during the financial crisis, finding that the bank failed to properly assess its liquidity position.

The UK’s Financial Services Authority published a final notice against Kaupthing Singer and Friedlander Ltd. (KSFL), the UK-based subsidiary of the failed Icelandic banking group, Kaupthing Bank Hf (KBHf). The FSA found that KSFL breached the regulatory principle requiring a firm to conduct its business with due skill, care and diligence.

“KSFL was found to be in breach because it failed to consider promptly and properly whether liquidity stresses in KBHf in Iceland would have a detrimental effect on its own liquidity position,” it says.

The FSA says that KSFL did not give proper consideration to a financing arrangement it had with its parent company, which would allow it to draw up to £1 billion on short notice. It says that the bank assumed it could rely on receiving this funding, if necessary, without testing that assumption. And, that when it started to have concerns about this liquidity arrangement, it “failed to discuss these concerns with the FSA in a timely manner”.

While the ultimate insolvency of KSFL cannot be attributed to the failure to monitor the liquidity arrangement, the FSA says, it nevertheless considers its failings to be serious “as they occurred at a critical period for the financial markets and at a time when the FSA was particularly concerned to ensure it was fully informed about all banks’ liquidity.”

Following the conclusion of the investigation, the FSA reports that it received undertakings from the bank’s former CEO, chairman, and another director, that they will not seek regulatory approval for five years from October 2008 (when KSFL was placed into administration). However, the FSA has not made any findings of regulatory breach against them, and they have not made any admissions, it notes.

The FSA says it published the notice to ensure that other firms understand the importance of complying with its liquidity guidelines; and that, where compliance is dependent on liquidity arrangements with a parent company, the ability to exercise these arrangements should be rigorously tested, rather than assumed.