Co-operative Bank publicly chastised for misleading authorities
Co-operative Bank has come under fire once again, after being publicly lambasted by UK authorities.
The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have together chastised the bank, not only for failing to manage its own affairs responsibly, but also for not being altogether open with the regulating bodies.
Co-op claimed that it was holding levels of capital as required by authorities to protect them - and their customers - from the effects of financial disaster. The bank said in its annual results for the year ending 31 December 2012 that "adequate capitalisation can be maintained at all times even under the most severe stress scenarios".
"A capital buffer... is being maintained, to provide the ability to absorb capital shocks and ensure sufficient surplus capital is available at all times to cover the bank's regulatory minimum requirements."
It made this claim despite reporting a £1.3 billion loss owing to costs associated with past mis-selling and legal issues.
However, its claims were not correct.
"When the financial statements were published, there was no reasonable basis for stating that Co-op Bank had adequate capital in the most severe stress scenarios," said the FCA in a statement published on Tuesday (11 August).
The FCA said Co-op's failings would normally merit a 'substantial fine'. However, the bank narrowly escaped such a financial penalty because of its already floundering financial situation.
"As with all enforcement investigations, serious consideration is given to the impact of a financial penalty," the FCA says. "In this case the FCA and PRA considered the fact that Co-op Bank is engaged in a plan to ensure that it... has adequate capital to withstand a severe stress."
As if this weren't bad enough, the bank also failed to tell regulators about intended changes to two senior staff members and the reasons behind those changes.
"The regulators would expect to be notified of any intended changes to senior individuals without delay to enable us to properly consider and assess the management of the firm," the FCA says. "This is particularly important when, as was the case with Co-op Bank, there were significant issues to be dealt with by the firm."
Former Co-op chief executive Barry Tootell resigned in May 2013 after the bank failed to buy branches from Lloyds Banking Group.
Scandal-ridden former non-executive chairman Paul Flowers resigned in June 2013.
The practice of a dishonest salesperson misrepresenting or misleading an investor about the characteristics of a product or service. For example, selling a person with no dependants a whole-of-life policy. There have been notable mis-selling scandals in the past, including endowment policies tied to mortgages, employees persuaded to leave final salary pensions in favour of money purchase pensions (which paid large commissions to salespeople) and payment protection insurance. There is no legal definition of mis-selling; rather the Financial Services Authority (FSA) issues clarifying guidelines and hopes companies comply with them.