Both the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have announced that they intend to commence investigations into recent events at the Co-operative Bank. In a statement on its website, the FCA said that it would conduct an enforcement investigation relating to decisions and events up to and including June 2013. The PRA’s statement said that its investigations would include consideration of the conduct of senior managers at the bank.

The FCA is responsible for regulating the conduct of authorised firms, while the PRA is responsible for ensuring the financial stability of banks and other large institutions. Both regulators have the power to fine the bank and/or its key personnel, and to ban key individuals from working in financial services.

The Co-operative’s financial troubles – involving a £1.5 billion capital shortfall – forced them to accept a re-financing led by two US-based hedge funds. These funds became the majority owners of the Co-operative, effectively removing the bank’s mutual status.

Much recent publicity has surrounded the bank’s former chairman Reverend Paul Flowers, who had no banking experience prior to taking up his role. There have been many lurid headlines about Mr Flowers’ private life, but of greater concern to the regulators is that, when questioned by the Treasury Select Committee (TSC) in November 2013, Mr Flowers estimated the size of the bank’s balance sheet as £3 billion, when it was in fact £47 billion. Despite his lack of experience and knowledge, the FCA’s predecessor, the Financial Services Authority (FSA), still approved Mr Flowers’ application to perform the role.

Prime Minister David Cameron MP said of the regulators’ announcements:”The Chancellor will be discussing with the regulators the appropriate form of inquiry. There are clearly a lot of questions that need to be answered. Why was Reverend Flowers judged suitable to be chairman of a bank? Why weren’t alarm bells rung earlier, particularly by those who knew?”

The day after the regulators announced their investigations, FCA director of supervision Clive Adamson told the TSC he had ‘no regrets’ over the decision to approve Mr Flowers as chairman. “I stand by the decision I made at the time. I was as surprised as all of us about Flowers’ apparent misdemeanors. I don’t think it was a mistake with the information I had at the time,” said Mr Adamson in his testimony. He added that two experienced deputy chairmen had served alongside Mr Flowers.

In November 2013, FCA chief executive Martin Wheatley pointed out that the approval process for senior individuals has changed since Mr Flowers was approved in March 2010.

TSC chairman Andrew Tyrie MP said he believed the FSA’s decision was “pretty catastrophic” and “negligent”.

The regulators’ actions are in addition to the Co-operative’s own internal review, led by former Treasury minister Lord Paul Myners; the Treasury review ordered by the Chancellor of the Exchequer George Osborne MP; and the police investigation into drugs allegations regarding Mr Flowers. The Treasury’s independent review will be delayed until the regulators have completed their investigations.