The government has launched an independent review into the prudential supervision of the Co-operative Bank between 2008 and 2013, as the Financial Conduct Authority (FCA) banned its former chair today (6 March).
Paul Flowers, who was chair of Co-op Bank between 15 April 2010 and 5 June 2013, was charged with possession of class A and class C drugs in 2014.
The watchdog banned him from the financial services industry, after concluding that his “conduct demonstrated a lack of fitness and propriety required to work” in the market.
The FCA found that during his tenure at the bank Mr Flowers “used his work mobile telephone to make a number of inappropriate telephone calls to a premium rate chat line in breach of Co-op Group and Co-op Bank policies”.
He also “used his work email account to send and receive sexually explicit and otherwise inappropriate messages, and to discuss illegal drugs, in breach of Co-op Group and Co-op Bank policies, despite having been previously warned about his earlier misconduct”, the watchdog said.
According to Mark Steward, FCA’s executive director of enforcement and market oversight, “the role of chair occupies a unique place of trust and influence”.
He said: “The chair is pivotal in setting expectations of a company’s culture, values and behaviours.
“Mr Flowers failed in his duty to lead by example and to meet the high standards of integrity and probity demanded by the role.
“These high standards are what the financial services industry and the wider community rightly expect of its senior individuals. Where a chair, or other senior individual, fails to discharge these standards the FCA will hold them to account.”
The economic secretary to the Treasury John Glen is now launching a formal review of the supervision of Co-op Bank, now that the FCA has concluded its enforcement investigations.
The independent review will look into the supervision of the bank during a significant period for the firm, including its withdrawal from the bidding process to purchase 632 bank branches from Lloyds Banking Group - known as “Project Verde”- in 2013, to understand what lessons can be learned.
Co-op’s Bank governance structure up at that time was “entirely inadequate” for a bank of any size, the Treasury Select Committee (TSC) concluded in its inquiry report, published in 2014.
Mark Zelmer, former deputy superintendent of the Office of Superintendent of Financial Institutions, Canada, has been appointed by the Prudential Regulation Authority’s (PRA) to carry out the Independent review.
Mr Glen said: “The government committed to undertake an independent investigation in 2013, once the FCA’s regulatory action concluded. That regulatory action has now come to an end.
“The review will look at the actions, policies and approach of the Financial Services Authority, and latterly the PRA, as the institutions with statutory responsibility for the prudential supervision of the Co-op Bank during the period in question.”
Mr Glen added that as recommended by the TSC, the review will have full access to all relevant documents and correspondence, including the record of government contacts concerning the Lloyds “Verde” bidding process.