Bank regulator to open Co-op probe

The Co-operative Bank is to be the subject of an enforcement investigation by the Bank of England's Prudential Regulation Authority (PRA).

The Co-op Bank underwent a rescue last year after a £1.5 billion black hole was discovered in its finances.

The regulator said the probe would "consider the role of former senior managers" at the lender, which underwent a rescue last year after a £1.5 billion black hole was discovered in its finances.

The shortfall was widely attributed to problems arising from the takeover of the Britannia building society and the failed bid to acquire more than 600 branches from Lloyds.

Questions about the management of the bank were also raised following drug revelations surrounding former bank chairman Paul Flowers.

The Financial Conduct Authority said it was also undertaking enforcement investigations into the bank, looking at "decisions and events up to June 2013".

The PRA said no further details of its probe would be published until it had reached its conclusions.

A separate review announced by Chancellor George Osborne will not begin "until it is clear that it will not prejudice any actions that the regulators may take". The PRA indicated it would co-ordinate the timings of the separate probes with the Treasury.

It is the latest round of scrutiny to be faced by the bank and the wider Co-op group, and the first formal confirmation of official regulatory probes.

It is understood that investigations will look into events as far back as 2006, with a wide range of penalties available should regulators find wrongdoing, including unlimited fines.

Issues such as the capital shortfall and the level of due diligence ahead of the Britannia deal will come under scrutiny, as well as the timing of disclosures to markets and regulators about the problems the bank was facing.

Individuals found responsible for breaches could be declared not fit and proper to hold positions in businesses regulated by the PRA - which oversees banks, building societies, insurers and other financial firms.

Companies can also face fines though this is understood to be less likely in the case of the Co-op given the financial difficulties it has been facing.

Current managers are not expected to come under the spotlight in the probe.

The announcements mean the Treasury inquiry announced by George Osborne has effectively been put into deep freeze for at least several months.

In September 2012, former Halifax Bank of Scotland executive Peter Cummings was fined £500,000 by the former Financial Services Authority - some of whose functions have now been taken over by the PRA - for his role in the collapse of that bank.

Meanwhile, the wider Co-op Group is carrying out a fact-finding probe as well as a root-and-branch review of its structure in the wake of the allegations about Mr Flowers.

Former Treasury mandarin Sir Christopher Kelly is already undertaking a review expected to report in May into what went wrong at the bank.

MPs on the Treasury Select Committee investigating the Co-op will tomorrow take evidence from Clive Adamson, director of supervision at the FCA.

A rescue plan for the bank saw investors exchange £1 billion of bonds for new shares in the lender last month.

The restructuring sees the Co-op group retain a 30% stake in the lender but majority control ceded to stockholders including US hedge funds.