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Co-Op Bank escapes fine despite drug scandal, failings

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Christopher Furlong | Getty Images

Co-operative Bank will not be fined for failings which helped push the bank to the brink of collapse before it was bailed out by bondholders, Britain's financial regulator said on Tuesday.

The Financial Conduct Authority issued a public censure against the bank for breaching listing rules that require companies to ensure that information published is not misleading so that investors can make fully informed decisions.

The FCA also found that Co-op Bank fell short of its responsibility to be open with its regulators, one of the principles that regulated firms must abide by.

The Co-operative Bank will not be fined for failings that helped push the bank to the brink of collapse before it was bailed out by bondholders, Britain's financial regulators said on Tuesday.

Instead capital should be preserved to bolster its battered balance sheet, the Financial Conduct Authority (FCA) said.

Co-op Bank is trying to recover from its near-collapse in 2013, when it was hit by a yawning hole in its finances, a drugs scandal, an exodus of top executives and losses from bad commercial real estate loans. The crisis saw bondholders take control of the bank, with its long-time owner, the mutual Co-operative Group, relegated to a minority holding.

The only British lender to fail a UK banking stress test, it has agreed a plan with the regulator to bolster its capital strength.

The Financial Conduct Authority (FCA) issued a public censure against the bank for breaching listing rules that require companies to ensure published information is not misleading, allowing investors to make fully informed decisions.

The FCA, which undertook the 18-month investigation into the actions of former management and the 2009 merger with the Britannia Building Society, also found that Co-op Bank fell short of its responsibility to be open with its regulators, one of the principles that regulated firms must abide by.

"Investors were left unaware of Co-op Bank's true capital position and we were left in the dark about intended changes to senior personnel at the bank," said Georgina Philippou, the FCA's acting director of enforcement and market oversight.

Separately, the Prudential Regulation Authority (PRA) found that Co-op Bank failed to comply with rules requiring a firm to manage its affairs responsibly, with adequate risk management.

The PRA said Co-op's risk management procedures were flawed in design and operation.

The FCA said that Co-op Bank's failings would normally merit a substantial fine. However, in the circumstances, it has decided not to impose a financial penalty and to instead issue it with a public censure.

"This is a serious matter, but exceptional circumstances mean a public censure is the appropriate and proportionate response. It is vitally important that Co-op Bank's capital resources are directed towards improving its resilience," Philippou said.

Co-op Bank's Chairman Dennis Holt on Tuesday apologised to customers for the bank's failings and said it is a significantly stronger organisation today under new leadership.

"The board fully accept the lessons that need to be learnt, but it is important to remember these are not a reflection of how the bank is run today," Holt said.