Following an enforcement investigation, the PRA and a team of investigators at the FCA found that there were serious and wide-ranging failings in Co-op Bank’s control and risk management framework between 22 July 2009 to 31 December 2013. The PRA also found that the firm failed to deal with its regulators in an open and co-operative manner in that period.
The PRA found Co-op Bank’s control framework to be "flawed both in design and operation", and found inadequacies in the firm’s risk management framework policies and in its capital management and corporate lending policies and procedures. This meant that the firm did not adequately consider the level of risk it assumed and therefore did not have the capability to manage that risk. The PRA also found deficiencies in the management information which the firm produced, which led to Co-op’s Board not being appropriately apprised of key issues.
The PRA also said that 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".
Co-op Bank also failed to deal with regulators in an open and cooperative manner. Specifically, Co-op Bank failed to notify the regulators without delay of two intended personnel changes in senior positions.
The PRA considers these breaches by Co-op Bank to be sufficiently serious to warrant a substantial financial penalty. However the FCA and PRA considered the fact that Co-op Bank is engaged in a plan to ensure that it meets its Individual Capital Guidance on a sustainable basis and has adequate capital to withstand a severe stress. The PRA would otherwise have imposed a financial penalty of around £120 million on Co-op Bank.
According to the PRA, towards the end of 2013, following changes to its Board and senior management, Co-op Bank began properly to address the concerns around its risk management framework structures and policies and procedures around corporate lending and capital management.
Andrew Bailey, Deputy Governor, Prudential Regulation, Bank of England and CEO of the PRA said:
“Firms must have in place strong controls and sound risk management as operating without them undermines safety and soundness. Co-op Bank’s failings stand out both for the duration and seriousness of the risk management and control deficiencies uncovered. This was compounded by a lack of openness with their regulator. These were serious transgressions. The PRA has not levied a fine in this instance but, if any future enforcement investigation into Co-op Bank found serious and wide-ranging failings, this censure will be a relevant factor in determining the outcome.”
Georgina Philippou, acting director of enforcement and market oversight, said:
"Firms have a very basic but extremely important responsibility to be transparent with their investors and with us, as their regulator, and Co-op Bank fell short of this. As a result, investors were left unaware of Co-op Bank’s true capital position and we were left in the dark about intended changes to senior personnel at the bank.
“This is a serious matter, but exceptional circumstances mean a public censure is the appropriate and proportionate response. It is vitally important that Co-op Bank’s capital resources are directed towards improving its resilience.”
The PRA’s investigations into the role of former senior individuals in events at Co-op Bank are continuing.
