Speaking in the wake of 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, the chairman of the Treasury Select Committee said the issue highlighted how much reform was required.
Mr Flowers 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.
Under the Financial Services Authority’s approvals regime, Mr Flowers was interviewed before being appointed to the board and before becoming chairman. The FCA recommended that two deputy chairpersons be appointed due to his almost complete lack of banking experience.
The Mail on Sunday video footage appears to show Mr Flowers buying £300 worth of drugs, with the paper claiming that the incident occurred days after he was grilled by the TSC. At the meeting he had struggled with a number of questions and mis-stated the capital of the bank as being £3bn, which it was in fact £47bn.
He has apologised in the wake of the drug allegations and since been suspended from both the Labour Party and the Methodist Church.
Andrew Tyrie, chairman of the TSC, said this episode illustrates how much there is to do to reform the regulatory approval process for bankers, “especially those at the top of our banks”, and how important it is that fundamental reform take place.
He said: “The approved persons regime degenerated into little more than a bureaucratic box-ticking exercise. Its shortcomings were already manifest nearly four years ago.
“Yet, until the Banking Commission proposed that it be scrapped and replaced with something fit for purpose, little was done to sort it out.”
Last month, the Financial Conduct Authority rejected calls to extend a tough new ‘senior persons regime’ for bankers across the financial services industry but has proposed toughening up the existing approved persons regime by introducing a set of ‘individual standards’ rules.
The new regime would include new criminal sanctions for reckless misconduct by senior bank staff and will “set expectations” for senior staff rather than simply acting as an “initial gateway”.
Mr Tyrie commended some of the changes but expressed disappointment that not all of the recommendations from the Banking Commission, which he also chaired, have been acted upon.
He said: “The Commission has recommended radical reform, replacing the failed system with vigorous and continuous supervision for senior persons which identifies who is really responsible for what and which makes them individually accountable. Alongside it, licences should be issued to all those employees, and only those employees, who could pose a serious risk to the bank, its reputation, or its customers.
“The jury is out on progress. Both the government and the regulators have, in principle, endorsed the creation of a new system for the most senior bankers. That is a step forward; but the legislative proposals remain silent on licensing. That’s not so good.
“It is crucial that this opportunity is now seized. It would be a disaster were we to lapse back into the bad habits of old.”
