The Prudential Regulation Authority (PRA), which conducts prudential regulation of some of the UK’s largest financial services firms, has banned two former executives of The Co-operative Bank – Barry Tootell and Keith Alderson – from holding significant influence functions in the future. Former chief executive Mr Tootell has also been fined £173,802; and former Managing Director of the Corporate and Business Banking Division Mr Alderson has also been fined £88,890.
The issues concerning Mr Tootell lasted for almost four years, between July 2009 and May 2013. He prioritised the bank’s short-term financial position at the expense of its longer-term capital position, and neglected to ensure that the Risk team challenged the bank over its practices regarding this. The PRA Final Notice says he was “centrally involved in a culture which encouraged prioritising the short-term financial position of the Firm at the cost of taking prudent and sustainable actions to secure the longer-term capital position of the Firm.”
Mr Alderson has been banned and fined over his failure to ensure adequate due diligence was carried out regarding the bank’s acquisition of Britannia Building Society. He is also said to have challenged staff as to the impairment figures – the sum by which an asset’s cash flows are lower than its book value – they had proposed.
The PRA conceded that the two men did not act dishonestly or recklessly, but has “concluded that they are not fit and proper persons to carry out a significant influence function at a PRA-authorised firm on the grounds of a lack of competence and capability.”
Both men left their positions at the bank in 2013.
The bank itself was censured by the PRA in August 2015 over issues with its risk management, capital management and corporate lending policies. Had it not been for its parlous financial situation at the time, the bank would also have been fined £120 million.
The Co-operative Bank required a massive hedge fund-led bailout after running up a capital shortfall of £1.5 billion. These hedge funds now hold a majority stake in the bank, meaning it lost its mutual status. The stake of former parent company The Co-operative Group is now less than 20%.
The media chose to concentrate on the drug-taking activities of former non-executive chairman Reverend Paul Flowers, but of much more concern from a regulatory point of view was Mr Flowers’ performance at the Treasury Select Committee in November 2013, when he appeared not to know the size of the bank’s balance sheet, stating it as £3 billion instead of the correct figure of £47 billion.
Andrew Bailey, Deputy Governor, Prudential Regulation, Bank of England and CEO of the PRA said:
“Banks that are not well governed have the potential to pose a threat to UK financial stability. The actions of Mr Tootell and Mr Alderson posed an unacceptable threat to the safety and soundness of the Co-op Bank which is why we have decided a prohibition is appropriate in these cases. This action makes clear that there are serious consequences for senior individuals who fall short of the PRA’s expectations. The new Senior Managers Regime, which will be introduced in March, will further ensure that senior managers are held duly responsible for their actions.”
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.