Regulators censure Co-op for misleading investors

The troubled Co-op Bank has been censured by both the FCA and PRA for misleading investors over its capital position.

In a joint investigation with the PRA, the FCA also found the bank “fell short of its responsibility to be open with its regulators”.

In addition, the PRA has published the result of its enforcement action against the Co-op. The regulator says the firm’s “three lines of defence” risk management model was “flawed in design and operation”.

These failings occurred between 22 July 2009 and 31 December 2013.

The FCA says under normal circumstances the bank would have been hit with a “substantial” fine.

FCA acting director of enforcement and market oversight Georgina Philippou says: “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.”

In its financial statements for the year ending 31 December 2012, published on 21 March 2013, Co-op Bank said: “Adequate capitalisation can be maintained at all times even under the most severe stress scenarios, including the revised FSA “anchor” stress scenario.”

It also insisted a capital buffer was being maintained to “absorb capital shocks and ensure sufficient surplus capital is available at all times to cover…regulatory minimum requirements”.

In reality, from 15 January 2013 – when the regulator had issued revised capital requirements to the bank – it did not have sufficient capital to meet these new requirements, the FCA says.

In addition, the FCA says there was “no reasonable basis” for stating that Co-op had adequate capital in the most severe stress scenarios.

The FCA says investigations into senior individuals at the Co-op Bank during the relevant period are “ongoing”.