BOE Shows Its Teeth for First Time as Bans Hit Co-Op Bankers

  • Ex-Co-Op Bank officials banned, fined over lender's collapse
  • PRA, FSA had never before targeted a former chief executive

The U.K.’s Prudential Regulation Authority showed its teeth today, barring former Co-Operative Bank Plc Chief Executive Officer Barry Tootell from holding a senior financial post.

The PRA also fined Tootell 173,802 pounds ($249,449) for failures related to running of the Co-Op Bank. The punishment is the first time the PRA, the Financial Conduct Authority or their predecessor, the Financial Services Authority, banned a former bank CEO , according to a Bank of England spokeswoman.

Tootell stepped down as CEO in May 2013, less than a month after the lender abandoned a 750 million-pound bid for more than 600 Lloyds Banking Group Plc branches. In the months after that, the customer-owned Co-Operative Group, the bank’s parent company, began to unravel, and the lender ended up in the hands of hedge funds that had bought its bonds.

“Tootell was centrally involved in a culture within the Co-Op Bank which encouraged prioritizing the short-term financial position of the firm at the cost of taking prudent and sustainable actions,” the PRA said in a statement on its website. “As CEO, Mr. Tootell played a significant role in the Co-Op Bank managing its finances and capital position in a manner that was not in line with the firm’s own stated cautious risk appetite.”

Other Ban

Keith Alderson, the former head of the lender’s corporate and business division, was fined 88,890 pounds and also banned from holding senior positions.

Alderson was fined because he failed to “exercise due skill, care and diligence in carrying out aspects of his role,” the PRA said. Alderson didn’t assess the risks in the loan book of Britannia Building Society, which the Co-Op bought in 2009. He didn’t refer to the dangers in the corporate book to Co-Op Bank’s risk management process and as a result they weren’t handled properly, the PRA said.

The PRA and an outside spokeswoman representing the bank both said they were unable to supply contact details for either of the former bankers.

"These findings highlight serious shortcomings about how the bank was managed in the past and, as we have said before, the investigations by the regulators into what went wrong at the bank are very important,” the Co-Op said in an e-mailed statement. “They indicate the extent of the cultural and other issues in the bank.”

Management Problems

The two men aren’t the first one-time Co-Op Bank executives to face some sort of financial penalty, however. Paul Flowers, the former chairman, was fined 525 pounds by a Leeds court in 2014 after pleading guilty to possession of cocaine, crystal meth and ketamine.

The FSA censured Tidjane Thiam when he was CEO of Prudential Plc for failing to inform it of his efforts to acquire American International Group Inc.’s Asian subsidiary in 2010. A censure is a reprimand that stops short of a fine or a ban.

The PRA, which sets the prudential standards firms it authorizes must follow, only uses enforcement powers such as fines and bans in the “most egregious cases,” Andrew Bailey, the regulator’s chief executive, said in a comment published in the Financial Times.

Previously, the regulator had limited itself to financial penalties against institutions.

The PRA in 2014 fined Royal Bank of Scotland Group Plc for IT failings, it censured the Co-Op Bank and fined Raphaels Bank for systems and controls failings.

(An earlier version was corrected to fix the date of a PRA fine in the final paragraph.)

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