Treasury to probe Co-op Bank – after FOUR YEARS

Inquiry will look at appointment of disgraced boss exposed by MoS

THE Treasury is poised to launch an independent inquiry into the Co-operative Bank nearly four years after it almost collapsed.

The long-awaited probe will look at the regulation of the bank and questions will include why former Methodist minister Paul Flowers – whose drug-taking was exposed by The Mail on Sunday – was allowed to become chairman of the lender.

The Co-op Bank has never fully recovered from the crisis, which led to a rescue takeover by its creditors. Huge losses are continuing and the bank announced last week it is putting itself up for sale.

The Treasury first promised to launch an inquiry into the Co-op Bank in November 2013, but a probe failed to get off the ground because of separate investigations and enforcement actions by the Financial Conduct Authority and the Bank of England against the bank and some of its directors.

Regulators are expected to nominate a senior City lawyer to head the probe. The appointment will be ratified by the Treasury. FCA sources said the regulator had already begun ‘scoping, governance and data gathering’ exercises in relation to the inquiry.

Regulatory enforcement actions into the bank’s problems are still thought to be under way, but the FCA activity suggests they could be concluded imminently.

Co-op Bank is likely to announce fresh losses next month and has said it will miss Bank of England targets for its capital reserves.

The independent probe could cause embarrassment at the FCA as the regulator’s chief executive Andrew Bailey played a key role in regulating the Co-op Bank.

Bailey was director of UK Banks and Building Societies at the Financial Services Authority in 2011 when it began talks to take over what became TSB from Lloyds Banking Group and he raised concerns about the bank’s capital position.

The Treasury has said that the inquiry would 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’ from 2008 until 2013.

Mark Taber, a bond investor who campaigned successfully in 2013 for retail investors to get a

better deal from the bailout, said it was ‘not that satisfactory’ that the regulator was appointing an investigator into itself.

He added it was unclear what was still holding up the Treasury probe. Taber said: ‘Both the FCA and PRA have issued enforcement notices to the Coop Bank and various individuals so it is hard to see what or who they are still investigating three and a half years later.’

The bank was censured by the PRA and FCA in August 2015, but was spared a £120million fine because of its weakened financial position.

Former Co-op Bank chief executive Barry Tootell was separately fined and barred from working in financial services by the PRA in January, 2016.

The Treasury Select Committee has criticised the regulator for permitting the appointment of Flowers.

Clive Adamson, former director of supervision at the FSA and the FCA, approved the appointment and has said he stands by the decision. He left the FCA two years ago.

The FCA, the Treasury and the Co-op Bank all declined to comment.