Co-op bank dodges £120 million fine but is censured by regulators

Co-op bank dodges £120 million fine but is censured by regulators

The troubled Co-op Bank has dodged a possible £120 million fine for the failings which led up to its virtual collapse in 2013 after a £1.5 billion ‘black hole’ was found in its balance sheet.

The bank has been under intense scrutiny from both the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) for the last two years after it had to be rescued by a consortium of investors led by American hedge funds.  The Co-operative parent company now owns just 20% of the bank.

Enforcement

The enforcement probe by the regulators uncovered evidence of weak oversight of the bank’s operations, misleading of investors over its capital position and that it ‘fell short of its responsibility to be open with regulators.’

But the PRA waived the potential £120 million fine on the grounds that it would hinder the bank’s efforts to boost its financial strength and continue its recovery.

Failings

The regulator said there were ‘serious and wide ranging failings in Co-op Bank’s control and risk management framework during the period from July 22nd 2009 to December 31st 2013.

“Co-op Bank had a culture which encouraged prioritising the short term financial position of the firm at the cost of taking prudent and sustainable actions for the longer term.”

Censure

The FCA’s censure related to a breach of the rules when it listed on the stock market in 2013.  It had not been ‘transparent’ with investors, leaving them unaware of its weak capital position.  They were also not open with the regulators when they failed to inform them of changes in senior staff in 2012 and 2013.

Bank chairman, Dennis Holt, said the censures were not a reflection of how the bank is now being run.

“On behalf of the bank, I would like to apologise again to customers for these past failings and reassure them that the bank is a significantly stronger organisation today under the leadership of the current senior management team.”

Key figures

The regulators have confirmed the enforcement investigations continue against the key figures involved in the bank’s collapse, including its former chairman, the Rev Paul Flowers.

The Rev Flowers stepped down from his post amid allegations involving class A drugs for which he was later fined.  His inability to tell MPs the size of the bank’s balance sheet when giving evidence to the Treasury Select Committee was held up as an example of the amateurish way in which the bank was being run.

Toxic

The investigation went back to 2008 when the bank combined with the Britannia Building Society.  Many of the loans on the Britannia balance sheet went un-noticed.

The bank’s capital position came to light when it attempted to buy 632 branches from Lloyds TSB.  The bid failed when the £1.5 billion ‘black hole’ was discovered in the Co-op’s finances, which was followed by the emergency bail out by a consortium of investors.

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