Co-operative Bank avoids fine over past failings

In June, the Co-op Bank updated debtholders on its talks with regulators, saying: “The PRA is undertaking an enforcement investigation in relation to the Bank and as part of that investigation will consider the role of former senior managers; (and) the FCA is undertaking enforcement investigations covering decisions, events and processes at the Bank over the period from consideration of the merger with Britannia Building Society in mid-2008 to the end of 2013”.

The Co-op Bank is set to dodge financial penalties over the failings that led to its near-collapse and a £1.5 billion bondholder-funded bailout after regulators concluded that fines would threaten the lender’s turnaround. “It is vitally important the Co-op Bank’s capital resources are directed towards improving resilience”.

The Bank of England’s regulatory arm, the Prudential Regulation Authority, would have levied a £120m fine.

The censure for serious risk management and transparency failings will be particularly embarrassing for the 143-year old bank, which had built its reputation around its ethical credentials.

PRA chief executive Andrew Bailey, deputy governor of the Bank of England, said: “Firms must have in place strong controls and sound risk management as operating without them undermines safety and soundness”.

The PRA found regulators were “not informed” of the changes in circumstance of the two “key individuals” in a timely manner and on one occasion were “provided with an incorrect assurance by Co-Op Bank” when it enquired about one of those individuals. The bank came close to collapse in 2013 after its credit rating was downgraded by six notches on the back of a £600m loss, but regulators thought a public dressing down would be retribution enough.

“A capital buffer…is being maintained, to provide the ability to absorb capital shocks and ensure sufficient surplus capital is available at all times to cover the bank’s regulatory minimum requirements”.

It also said the lender failed to deal with regulators openly and failed to notify them of “two intended personnel changes in senior positions”. These were serious transgressions.

As a outcome of its PRA stress test failure, the Co-op Bank postponed a vote on incentive awards for Mr Booker and senior colleagues.

Co-op said these were “legacy issues” that had occurred under the previous management.

In its financial statements for the year ending 31 December 2012, published on 21 March 2013, Co-op Bank stated that “adequate capitalisation can be maintained at all times even under the most severe stress scenarios, including the revised FSA [Financial Services Authority] “anchor” stress scenario”.

The crisis was compounded by a drugs scandal involving its then chairman Paul Flowers, nicknamed the “Crystal Methodist” in the press.

‘The investigations by the regulators into what went wrong at the bank are very important and the board takes the censures extremely seriously.