The Co-op Bank plc - FCA Final Notice
The FCA has issued a public censure against The Co-op Bank plc for breaches of LR 1.3.3R (misleading information not to be published) and Principle 11 of the Principles for Business (dealing with regulators in an open and honest way). The investigation into Co-op Bank was conducted jointly by the FCA and the PRA and they have each published their own final notices. The PRA found that Co-op Bank was also in breach of Principle 3 of the Principles for Business,
Breach of LR 1.3.3R
In its financial statements for the year ending 31 December 2012 Co-op Bank stated that it could maintain “adequate capitalisation” even in the “most severe stress scenarios”. It also stated that “a capital buffer was being maintained to cover the bank’s regulatory minimum requirements. However, there was no reasonable basis for these statements at the time they were made as the Co-op Bank did not have sufficient capital to maintain a buffer nor did it have adequate capital in the most severe stress scenarios. This latter statement had already been removed from another section of the financial statements after concerns about its accuracy.
In the Final Notice the FCA emphasises how important statements about capital are: they are “crucial to readers of banks’ financial statements” as “they are a key guide to the health and future stability of a firm”.
Breach of Principle 11
The breach of Principle 11 of the Principles for Business arose due to the failure to notify the FCA, in a timely manner, of changes in relation to key individuals at the Co-op bank. From April to May 2013 two separate discussions took place amongst senior individuals at Co-op Bank and as a result it was determined that the holders of these two positions would change.
The FCA were not informed of the changes until some time after, at which point one of the individuals had already left. In addition the FCA was provided with incorrect assurances in response to its questions in relation to one of the individuals.
The FCA states that the breaches are serious enough to merit a substantial financial penalty but highlights the fact that Co-op Bank is engaged in a turnaround plan to ensure it meets its capital requirements. The FCA considers the success of this plan is of “great importance” so does not wish to divert Co-op Bank’s resources away from that goal. Consequently, the final notice states that a public censure is appropriate and proportionate.
PRA Final Notice
The PRA also found that Co-op Bank breached Principle 3 of the Principles for Business in that it failed to take reasonable care to organise and control its affairs responsibly and effectively with adequate risk management controls. Its final notice states that the Co-op Bank’s control framework was flawed in both design and operation which meant that it did not consider, adequately, the level of risk it assumed.
Click here for the FCA Final Notice.
Click here for the FCA press release.
Click here for the PRA Final Notice.
Click here for the PRA press release.