FCA boss attacked for Co-op scandal

JOHN Griffith- Jones, the chairman of the Financial Conduct Authority, is facing calls to resign over the near collapse of the Co-op Bank.

The FCA and the Bank of England’s stability watchdog the Prudential Regulation Authority (PRA) slapped a rare ‘public censure’ on the l ender but spared it from a £120m fine because of the dire state of its finances.

The Co-op was accused of providing ‘false and misleading’ information to investors about its precarious financial health, as well as failing to be open with regulators.

This included keeping them in the dark about its decision to sack two unnamed senior managers, and the reasons why. The FCA said a separate investigation into senior individuals involved in the debacle, believed to include disgraced exc hai r man Paul Fl o wers, ‘is ongoing’.

In its report the PRA focused on ‘serious and wide-ranging failings’ in Co- op Bank’s ‘ control and risk management framework’ between July 22 2009 and December 31, 2013. It said this may have contributed to its near-demise as it ‘had the potential to weaken the firm and reduce its resilience’.

Regulators found the bank had a culture which ‘prioritised the short term financial position of the firm at the cost of long term stability’.

Andrew Bailey, deputy governor of the Bank of England, who runs the PRA, said: ‘ Co- op Bank’s failings stand out both for the duration and seriousness of the risk management and control deficiencies uncovered. This was compounded by a lack of openness with their regulator.’ One MP last night said the findings – which include the failure to spot risks in the lender’s corporate loan book which would later culminate in huge losses – are ‘acutely embarrassing’ for Griffith- Jones.

For most of the period in question he was chairman of accountancy firm KPMG, which was responsible f or vetting the Co- op Bank’s accounts.

Griffith- Jones became chairman of the new Financial Conduct Authority in April 2013, following a 37-year career at KPMG. He became chief executive of the accountancy firm in 2002 before becoming UK chairman in 2006.

He has been dogged by criticism over the collapse of HBOS – whose f i nances were also audited by KPMG while he was in charge. Insiders last night stressed that Griffith- Jones was not directly involved in these audits.

But John Mann, Labour member of the Treasury committee, said: ‘This is acutely embarrassing for him. Clearly he has to take responsibility for what happened under his watch – that’s what he rightly expects of others. Perhaps Mr Griffith- Jones ought to consider sacking himself’.

The PRA said it has shared the findings with accounting watchdog the Financial Reporting Council, which launched a separate investigation into KPMG in January last year. The Co-op Bank had to be rescued by hedge funds after a £1.5bn black hole was discovered in its finances in early 2013.

This prompted it to pull out of a deal to buy 631 Lloyds branches. But the lender kept investors in the dark about its problems – many of which stemmed from its disastrous merger with Britannia Building Society in 2009.

It insisted it was in no danger, despite being ordered to raise more capital in January. In its financial statements for 2012, published on March 21, 2013, it reported a £674m loss – caused by a £474m hit for bad loans, as well as a write- down on the value of its aborted IT upgrade. But it reassured investors: ‘Adequate capitalisation can be maintained at all times even under the most severe stress scenarios.’

The FCA said it ‘should have been apparent that this was a misleading statement’.

A KPMG spokesman said: ‘As the former auditor to the bank, we believe that we have provided robust audits which challenged the judgements and disclosures proposed by the bank’s management.’