The Co-operative Bank may have avoided paying a financial penalty for its “serious and wide-ranging failings” between 2009 and 2013, but it is expected that the firm’s former management will face fines and punishments in the months ahead.
The Bank of England’s prudential regulation authority (PRA) and the Financial Conduct Authority (FCA) said yesterday that the Co-op Bank had allowed “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”.
The regulators said that the lender’s breaches had warranted a “substantial financial penalty” of around £120m, but the PRA said imposing the fine would work against its own aim to improve the firm’s “soundness.”
The Co-op Bank is trying to recover from a near-collapse in 2013, when it was confronted with a hole in its finances, a drugs scandal involving its chairman Paul Flowers, an exodus of top executives and bottom line losses from bad commercial real estate loans. The period saw bondholders take control of the bank, with its long-time owner, the Co-operative Group, relegated to a minority holding.
More recently, in December, the Co-op Bank was the only lender to fail a Bank of England banking stress test.
Commenting on the regulator’s decision not to impose a £120m fine on the bank, Chris Skinner, a banking analyst and chairman of the Financial Services Club, told City A.M.: “I can understand why the regulator has taken this route.”
“They are on the operating table, still trying to be revived,” Skinner said, likening a financial penalty to “cutting a catheter” in the bank’s efforts to improve the health of its business.
But Skinner added that he would be “very shocked” if the regulators did not impose fines on individuals or bar former management from future City trading, saying it was likely that Flowers and former chief executive Neville Richardson, among others, would face penalties.
The FCA said yesterday that investigations into “senior individuals at Co-op Bank during the relevant period” were “ongoing”.