U.K. regulators will discuss a possible investigation tomorrow into Co-Operative Bank Plc and its former chairman, Paul Flowers, according to a person familiar with the plans, after Flowers’s apology Nov. 17 following media reports that he bought illegal drugs.
The board of the U.K. Prudential Regulation Authority, a unit of the Bank of England that oversees the largest banks, will discuss possible inquiries into Flowers at a board meeting, said the person, who requested anonymity because the meeting is private. The PRA’s board includes Martin Wheatley, chief executive officer of the U.K. Financial Conduct Authority, and Bank of England Governor Mark Carney.
Co-Operative Group Ltd., the bank’s parent, is reviewing its governance structure after the Mail on Sunday newspaper reported on Nov. 17 that Flowers had bought crystal methamphetamine and crack cocaine in Leeds, England. Flowers, who is also a Methodist minister, was the bank’s chairman from March 2010 until June of this year.
Flowers couldn’t be immediately reached for comment today. He apologized in a statement issued through the Methodist Church on Nov. 17.
Co-Op Group, which last month ceded control of its bank to its bondholders to help plug a 1.5 billion-pound ($2.4 billion) capital shortfall, said in a statement this week it is facing “difficult times,” though it will emerge “stronger than ever.” The company’s chairman, Len Wardle, resigned this week after leading the board that appointed Flowers.
Police, FCA Probes
U.K. Chancellor of the Exchequer George Osborne will discuss with regulators “what is the appropriate form of inquiry to get to the bottom of what went on here,” Prime Minister David Cameron told lawmakers in Parliament yesterday.
A government inquiry may come after investigations by the West Yorkshire Police and the FCA. Flowers’s home in Bradford was searched on Nov. 19 as part of the police investigation into the drug allegations.
Spokesmen for the PRA and FCA declined to comment on the inquiries. Patrick Tooher, a Co-Op Bank spokesman, didn’t immediately respond to a call seeking comment.
“This year has been incredibly difficult, with a death in the family and the pressures of my role with the Cooperative Bank,” Flowers said in the Nov. 17 statement. “At the lowest point in this terrible period, I did things that were stupid and wrong. I am sorry for this, and I am seeking professional help, and apologize to all I have hurt or failed by my actions.”
Flowers’s appointment as chairman in 2010 has been called into question by politicians because of his lack of banking experience prior to taking up the role.
“One point that came out of the financial crisis was that, while it’s important bank boards are diverse in their make up, they do need to have people on them with an appropriate level of banking experience who can properly understand the business,” said Charles Evans, a London-based regulatory lawyer. The FCA’s predecessor “took steps at that time to make the process for approved persons more robust. This situation is surprising as a result and implies that perhaps more needs to be done on both of these points.”