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Former Co-op bank chairman arrested on drugs investigation

Christopher Furlong | Getty Images News

The former chairman of the Co-operative Bank Paul Flowers has been arrested by U.K. police as part of an illegal drugs investigation.

West Yorkshire Police confirmed to CNBC that a 63-year-old man was arrested yesterday. The arrest was made in Liverpool late on Thursday evening in connection with an ongoing drug supply investigation. The man has not been charged and detectives are continuing their inquiries, the police confirmed on Friday morning.

"It's a matter for the police that he's been arrested," a spokesperson for the bank told CNBC. No other statement with regards to his arrest is expected to be issued by the Co-operative Bank.

(Read More: Bank ex-chairman on crack and meth after debt disaster)

Paul Flowers, a Methodist minister, faces allegations of drug use following a newspaper sting.

It's claimed that he paid £300 for cocaine after being filmed by an acquaintance he allegedly met through gay dating app Grindr. This meeting is reported to have happened just days after he appeared in front of an influential committee of U.K. politicians to help explain why a proposed deal between the Co-op bank and Lloyds did not work out.

The film shows Flowers talking about taking Ketamine and crystal meth, and the acquaintance is reported to have said that he also discussed smoking crack cocaine.

Flowers left the bank in June after the collapse of a deal to buy hundreds of Lloyds Bank branches. The Co-operative Group also announced that Len Wardle had resigned as current chair of the Group on Tuesday after the recent revelations about the behavior of Paul Flowers.

"(Flowers has) raised a number of serious questions for both the Bank and the Group. I led the Board that appointed Paul Flowers to lead the Bank Board and under those circumstances I feel that it is right that I step down now, ahead of my planned retirement in May next year, " Wardle said in a statement on the company website.

(Read More: Co-operative Group Chairman Wardle to step down)

"I have already made it clear that I believe the time is right for real change in our operations and our governance and the Board recently started a detailed review of our democracy."

In early November, the Co-operative Group's banking arm was placed into the hands of U.S. hedge funds in an attempt to plug a £1.5 billion ($2.4 billion) capital shortfall. However, the Co-operative Group, which also runs funeral services and supermarkets, still owns the largest stake in the bank with a 30 percent share.

It has been a torrid year for the U.K. lender after Moody's downgraded its credit rating in May amid reports of its weak capital position. The bank also pulled out of a deal to buy 630 branches from Lloyds Banking Group in April.

The problems for the Co-op Bank are believed to have stemmed from loans it took on via the acquisition of the Britannia Building Society in 2009.

Flowers was suspended by the Methodist Church following the claims, and the U.K.'s Labour Party where he was a former councilor and an adviser.

By's Matt Clinch. Follow him on Twitter @mattclinch81