George Osborne, chancellor of the Exchequer, has ordered an independent investigation into events at the Co-operative Bank and the circumstances surrounding them.
The investigation has been jointly agreed with the two regulators, the Prudential Regulation Authority and the Financial Conduct Authority, who have agreed there is a public interest in a statutory investigation.
It will be led by an independent person appointed by the regulators, with the approval of the Treasury.
Separately, the FCA and PRA have also announced they are both considering whether they should also launch formal enforcement investigations.
The independent investigation under the Financial Services Act will therefore not start until it is clear it will not prejudice any actions the relevant authorities may take, including the potential FCA and PRA enforcement investigations.
The investigation will cover the actions of relevant authorities (regulators and government) and the institution itself, including prudential issues, governance (including the appointment of senior staff) and acquisitions. The period that the investigation will review will start from at least 2008 and run to at least the present time.
The move follows The Mail on Sunday’s publication of video footage which appears to show the bank’s former chairman and methodist minister Paul Flowers buying cocaine and crystal meth just days after he appeared before the Treasury Committee.
Mr Flowers has apologised in the wake of the drug allegations and since been suspended from both the Labour Party and the Methodist Church.
He was appointed to the Co-op board in 2009 and was chairman between March 2010 and July of this year, when he stepped down amid a capital crisis that has seen its mutual parent cede majority control to US hedge funds.
Questions have been raised over the approvals process that led to his appointment, in particular because Mr Flowers had no banking experience prior to his appointment. One of the members of the FSA panel that approved Mr Flowers later took a non-executive director role at the bank.
Andrew Tyrie, chairman of the Treasury Committee, said: “A comprehensive independent inquiry is much needed.
“The Co-op bank’s problems appear to have developed over many years. The scope of the review will need to be wide. It should examine the role of the regulators and the appropriateness of the Co-op’s unique business model for running large banks as well as the causes of the its deep problems.
“I will do what I can to ensure that the review is independent, and is seen to be independent, of both government and regulators.”
A statement from the FCA said: “The FCA fully agrees that the investigation should be led by an independent person, and looks forward to supporting them in their work. The FCA will make its full resources available to support the investigation.
“The timing of the investigation must not prejudice any other criminal or regulatory proceedings. The FCA is already undertaking work to establish whether it should commence a formal enforcement investigation and expects to reach a conclusion shortly.”
