March 6, 2018 / 1:16 PM / in 9 months

UPDATE 1-Co-op Bank ex-chairman Flowers banned by British regulator

(Adds detail, comments from Flower’s solicitors and lawmakers, PRA on investigation)

By Emma Rumney

LONDON, March 6 (Reuters) - Paul Flowers, the former chairman of Co-operative Bank, was banned on Tuesday from working in financial services by Britain’s Financial Conduct Authority (FCA) as the government ordered an inquiry into how the bank was regulated.

Flowers, a former Methodist Church minister and local Labour party politician who was chairman of the bank from 2010 to 2013, lacked the “fitness and propriety” required, the FCA said.

A scandal over Flowers, who was filmed buying and using drugs in 2013 and pleaded guilty in May 2014 to possession of cocaine, ketamine and crystal methamphetamine, raised questions over why he had been appointed as chairman of Co-op Bank given his lack of banking qualifications.

The FCA said Flowers had used his work email to send and receive sexually explicit messages and to discuss illegal drugs and had made inappropriate phone calls on his mobile phone.

Lawyers for Flowers said he apologised for any embarrassment caused to Co-op by his behaviour, but that the FCA investigation had “yielded no suggestion he lacked the competence or capability or failed to discharge his obligations”.

“The FCA findings concern only his personal actions, which took place at a time of great turmoil and distress in his private life,” BCL Solicitors said in a statement.

Mark Steward, executive director of enforcement at the FCA, said Flowers had “failed in his duty to lead by example and to meet the high standards of integrity and probity demanded by the role”.

Flowers had also demonstrated an unwillingness to comply with FCA and other legal, regulatory or professional standards, demonstrating a lack of integrity, the FCA said.


The British government said on Tuesday it had ordered a long-awaited review into the oversight of Co-operative Bank by the FCA’s predecessor and the Prudential Regulation Authority (PRA).

The Treasury, Britain’s finance ministry, first announced the review in 2013 but it had yet to begin, prompting lawmaker Nicky Morgan, chair of the influential Treasury Select Committee, to write to the FCA in February asking why.

“The launch of the independent inquiry into Co-op Bank – more than four years after it was announced – is welcome; but it is hugely overdue,” she said in a statement.

The PRA has appointed an independent expert, Mark Zelmer, to carry out the inquiry, which covers the actions and policies of the PRA and the Financial Services Authority (FSA), with a focus on Co-op Bank’s failed bid for 632 Lloyds bank branches.

Shortly after this, Co-op Bank revealed a 1.9 billion pound funding gap. The bank’s troubles mainly related to bad commercial property loans, many of which were acquired through its takeover of Britannia Building Society in 2009.

Last June, Co-op Bank agreed a 700 million pound ($973 million) financial rescue package with its leading hedge fund investors, the bank’s second major rescue deal in five years following its near-collapse in 2013.

The Treasury said the investigation should look at a range of criteria encompassing how the FSA evaluated Co-op Bank’s suitability for the bid and whether it should have intervened.

These include looking into the FSA’s stress-testing and analysis of the bank, the bank’s impairment profile and whether the regulator could have acted differently.

“Since it was established in 2013, the PRA has been committed to learning the lessons of the past and the findings of this review will help the PRA meet its objectives in future,” the PRA said in a statement, welcoming the Treasury’s order.

The Treasury said the PRA should conduct the investigation within one year from the date of Zelmer’s appointment.

$1 = 0.7221 pounds Reporting by Emma Rumney, writing by Sinead Cruise and Emma Rumney, editing by Jason Neely and Alexander Smith

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