On January 15, 2016, the PRA published two Final Notices: one for Barry Tootell, former Chief Executive Officer of the Co-operative Bank Plc and another for Keith Alderson, former Managing Director of the bank’s Corporate and Business Banking Division. The PRA has prohibited both individuals from holding significant influence functions in a PRA-authorized firm on the basis that neither is fit and proper. The PRA found that both Mr. Tootell and Mr. Alderson had failed to exercise due skill, care and diligence (breach of Principle 6 of the Code of Practice for Approved Persons) between 2009 and 2013. In addition, both individuals had been knowingly concerned in the Co-operative Bank’s failure to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems (contravention of Principle 3 of the Principles for Business).
The PRA said that Mr. Tootell had been involved in a culture within the bank that prioritized the short-term financial position of the bank, giving less regard to prudent conduct and sustainable actions that could have been taken to protect the firm’s longer-term capital position. Following the bank’s merger with Britannia in August 2009 and until October 2012, Mr. Tootell was responsible for the Co-operative Banking Risk team. The PRA considered that he did not take the necessary steps to ensure that the team was structured and organized well enough to provide adequate guidance to the first line business of the bank. The PRA believed that if Mr. Tootell, who as CEO was significantly involved in the managing of the bank’s finances and capital position, had remained within the bank’s own stated cautious risk appetite, structured the Banking Risk team in a better way and discussed key issues in a timely manner with the Board, the bank could have dealt with the issues it had faced more effectively and in a more timely manner.
The PRA found that Mr. Alderson had not assessed the risk arising from the Britannia Corporate Loan Book adequately and had not escalated or made sufficiently clear certain risks that were found to be inherent in the Loan Book. Those risks were therefore not appropriately considered and mitigating actions were not taken. In addition, Mr. Alderson had not ensured that the impairment budgets and forecasts were always set according to an assessment of risks. He challenged staff on their proposed levels of impairment and this, together with the bank’s culture, brought about an environment in which staff felt pressurized into meeting previously set impairment forecasts, leading to a more optimistic view on impairment positions.
No claims of dishonesty or lack of integrity were made against either individual and neither had breached regulatory provisions deliberately or in a reckless way. In addition to the prohibitions, Mr. Tootell and Mr. Alderson were fined £173,802 and £88,890 respectively.
The PRA and FCA publicly censured the Co-operative Bank in August 2015, following their joint investigation into serious breaches and failings in the bank’s systems. The regulators found, amongst other things, that the bank had: (i) inadequately assessed the level of risk it assumed, leading to a failure to manage that risk; (ii) mismanaged the information that it produced, leading to the bank’s Board not being familiar with key issues affecting the bank’s business; and (iii) prioritized its short-term financial position without taking reasonable and prudent actions for the longer-term.
The objective of the incoming Senior Managers Regime is to encourage senior individuals to take greater accountability for their actions and make it easier for regulators to hold senior individuals to account. The Regime, which will apply to UK banks, building societies, credit unions and PRA-designated investment firms as well as branches of those firms, comes into effect on March 7, 2016.
The Final Notice for Barry Tootell is available at: http://www.bankofengland.co.uk/pra/Documents/supervision/enforcementnotices/en150116a.pdf and the Final Notice for Keith Alderson is available at: http://www.bankofengland.co.uk/pra/Documents/supervision/enforcementnotices/en150116b.pdf. The PRA’s Final Notice for the Co-operative Bank is available at: http://www.bankofengland.co.uk/pra/Documents/supervision/enforcementnotices/en110815.pdf and the FCA’s Final Notice for the Co-operative Bank is available at: http://www.fca.org.uk/static/documents/final-notices/the-co-operative-bank-plc-2015.pdf.