In its recent action against former senior figures at the Co-op Bank the PRA has highlighted the impact of the Senior Managers Regime on such enforcement cases, even though this was a case brought under the (now discredited) approved persons regime.
For those endeavouring to gauge what appetite the regulators might have for bringing future enforcement action under the new regimes for personal accountability, it was significant that Andrew Bailey, the CEO of the PRA, was quoted in the press release accompanying the Final Notices, as saying: "there are serious consequences for senior individuals who fall short of the PRA's expectations. The new Senior Managers Regime … will further ensure that senior managers are held duly responsible for their actions.”
The PRA fined and imposed prohibitions against Barry Tootell, the former CFO and then CEO of Co-op Bank and Keith Alderson, the former Managing Director of the Corporate and Business Banking Division, for misconduct relating to the announcement in August 2015, that the PRA (in action taken in conjunction with the FCA) had publicly censured the Co-op Bank.
The PRA found that, in the relevant period between 2009 and 2013, both individuals had failed to exercise due skill, care and diligence in carrying out their roles and that they had consequently "posed an unacceptable threat to the safety and soundness of the Co-op Bank". Both Mr Tootell and Mr Alderson were prohibited from holding a significant influence function in a PRA-authorised firm and they were fined £173,802 and £88,890 respectively (after discount for early settlement).
The PRA found that Mr Tootell had been central to a culture within the Co-op Bank which had apparently encouraged prioritising the short-term financial position of the firm at the cost of the firm’s longer-term capital position. He was also criticised for not taking adequate steps to ensure that the Co-op Banking Risk team, for which he was ultimately responsible, was properly structured and organised thereby meaning that it did not provide proper independent challenge and guidance. He was also found to have played a significant role in the Co-op Bank managing its finances and capital position in a way that was out of line with the firm’s own stated cautious risk appetite.
In respect of Mr Alderson the PRA found that he did not take reasonable steps to ensure that Co-op Bank adequately assessed risk arising across the Britannia Corporate Loan Book. He was also criticised for his failings in relation to the escalation of specific risks inherent in the Britannia Corporate Loan Book. The PRA concluded that as a result, the risks could not properly be considered, and nor could the appropriate actions be taken to mitigate them. The PRA also found that the Co-op Bank’s culture resulted in an environment in which some staff felt under pressure to meet impairment forecasts that had previously been set. The PRA accepted that Mr Alderson did not intentionally place any member of Co-op Bank’s staff under pressure to modify impairment figures in a way which was improper. Nonetheless the PRA found that on some occasions Mr Alderson’s challenge led to the result that a more optimistic view on the impairment position was ultimately taken than would otherwise have been the case.
Whilst it was unsurprising that the PRA concluded that the misconduct by both Mr Tootell and Mr Alderson was very serious because of the potential impact it could have had on the prudential soundness of Co-op Bank, it was interesting to note the emphasis that was placed upon the cultural dimension to the allegations made agianst them. This is something that senior managers will clearly need to be mindful of.