The FCA and PRA jointly censured The Co-operative Bank plc for various regulatory breaches. The announcement that Co-op was not to be fined has raised some eyebrows, nonetheless this is not the only interesting aspect of this decision.

This is the PRA's second enforcement action following a joint investigation with the FCA. With both investigations it is fair to assume that the lion's share of the effort (and resource) has been invested by the FCA because the PRA does not have a dedicated enforcement function. Issues will inevitably arise in the future where there has only been a prudential breach; in those circumstances the FCA would presumably have little appetite for diverting some of its limited resource to an investigation designed to advance the PRA's objectives.

The Co-op Bank's problems arose primarily because in its financial statements published in March 2013, it stated that "Adequate capitalisation can be maintained at all times even under the most severe stress scenarios, including the revised FSA "anchor" stress scenario". And: "A capital buffer above Individual Capital Guidance (ICG) is being maintained, to provide the ability to absorb capital shocks and ensure sufficient surplus capital is available at all times to cover the Bank's regulatory minimum requirements." Rather unfortunately for all concerned the reality was that since 15 January 2013, when the FSA had issued Co-op Bank with revised capital requirements, Co-op Bank did not have sufficient capital to meet its revised Capital Planning Buffer.

Following the joint investigation which highlighted the problems, the PRA found that Co-op Bank had breached Principle 3. The PRA found that there were serious and wide-ranging failings in Co-op Bank's control and risk management framework during the period, meaning the firm did not adequately consider the level of risk it assumed and therefore did not have the capability to manage that risk. The PRA also found deficiencies in the management information and a culture which encouraged prioritising the short-term financial position of the firm at the cost of taking prudent and sustainable actions for the longer-term.

Arising from this issue, the FCA found that Co-op Bank breached the FCA's Listing Rule 1.3.3R because it failed to ensure that information which was published in relation to its capital position was not misleading.

The regulators also both found that Co-op Bank had failed to be open and (ironically) co-operative with the regulators in breach of Principle 11. Specifically, both regulators criticised the Co-op Bank for its failure to notify them without delay of two intended personnel changes in senior positions. It was noted that the regulators would normally expect to be notified of any such changes to senior individuals to enable them to properly consider and assess the management of the firm.

Whilst the failures of the firm in relation to its capital position are ones to which firms will be very alive (and which are a reason why they invest considerable sums to mitigate the risk of such errors arising), the failure to notify the regulators will serve as a more salutary lesson to others. Both regulators have made clear that they expect firms to be notifying them very promptly of any proposed changes to senior management – and this presumably means that a notification to the regulators should precede a formal application for approval.

Despite the seriousness of the various breaches by Co-op Bank neither regulator imposed a financial penalty. Both stated that this was due to the exceptional circumstances of the Co-op Bank's current efforts to meet its Individual Capital Guidance on a sustainable basis. Many subjects of enforcement action, particularly smaller firms and individuals, may complain bitterly about the apparent injustice of this, but there is another noteworthy aspect to this decision not to impose a penalty. The FCA did not quantify what level of penalty would have been appropriate, but the PRA did specify that it would have imposed a fine of £85.3m (had Co-op Bank settled). A fine of this level would severely hamper the Bank's plan to meet its ICG.

The other aspect of this matter which will be of genuine interest to senior individuals across financial services is that both regulators noted that investigations into senior individuals at Co-op Bank during the relevant period are on-going. No further indications were given as to when the proceedings might conclude or who these individuals might be. Even if the other issues raised by these announcements may not have attracted the reader's attention, then surely this will give people pause for thought because it does suggest that, even before the coming into force of the senior managers regime, both regulators are endeavoring to hold senior individuals to account for what went wrong at the Co-op Bank.