In a Final Notice that showcases the importance the FCA places on the role of Chair, the FCA has banned former Co-op Bank Chair Paul Flowers from the financial services industry. Although the events concerned predated the senior managers regime, the decision underlines the importance placed by the FCA on those in senior positions in authorised firms conducting themselves with honesty and integrity.

The FCA findings focused on Mr Flowers' breaches of internal guides and his integrity, and not his competence and role in the near collapse of the Co-operative Bank. The FCA found that Mr Flowers' conduct demonstrated a lack of fitness and propriety required to work in financial services. In particular, he had demonstrated an unwillingness to comply with legal, regulatory and professional requirements.


Mr Flowers was Chair of the Co-op Bank between 15 April 2010 and 5 June 2013. Prior to this he was a Non-Executive Director, and was approved by the Financial Services Authority (FSA) to perform the CF2 Controlled Function from 29 May 2009 to 5 June 2013. Although the FSA did interview Mr Flowers before his appointment as Chair, the Final Notice emphasises that, during the period in which Mr Flowers was Chair of Co-op Bank, the FSA did not specifically approve the appointment of Chairs although they did meet with him prior to his appointment.

The FCA found that:

  1. At various times between 22 May 2011 and 16 June 2011, Mr Flowers used his work mobile telephone for personal use to call a premium rate chat line, in breach of the Co-op Group Expenses Policy. In July 2011 he received a warning from the Co-op Bank about this.
  2. On various occasions in the periods 27 February 2012 to 22 November 2012 and 14 April 2013 to 5 June 2013, Mr Flowers used his work email account to send and receive sexually explicit and inappropriate messages and to discuss illegal drugs, in breach of the Co-op Group Code of Conduct for Directors and the Co-op Group Computer Use Policy.

After Mr Flowers had left office he was convicted for possession of illegal drugs and fined £400.

The FCA found these failings particularly serious because they spanned a significant time period; Mr Flowers was aware of standards expected of him (and was involved in drawing up the Code of Conduct); and high standards are expected of a Chair.

The requirements of a Chair

The Final Notice provides a useful overview of the requirements and the regulator's expectations of a Chair. The Chair of a bank holds a special position of trust and influence with the potential to have a significant impact on their bank and confidence in the wider financial services industry. This was reflected in various pieces of corporate governance guidance publicly available over the period 2006 to 2012, as well as the internal requirements that Co-op Bank placed on its Chair. The FCA made particular reference to the fact that, in its financial statements, the Co-op Bank stated that it considered itself compliant with the principles and provisions of the Combined Code on Corporate Governance and the UK Corporate Governance Codes.

Mark Steward, the FCA's Executive Director of Enforcement and Market Oversight, said: "The role of Chair occupies a unique place of trust and influence. The Chair is pivotal in setting expectations of a company's culture, values and behaviours. Mr Flowers failed in his duty to lead by example and to meet the high standards of integrity and probity demanded by the role. These high standards are what the financial services industry and the wider community rightly expect of its senior individuals. Where a Chair, or other senior individual, fails to discharge these standards the FCA will hold them to account."

In the circumstances the FCA considered it appropriate to make a prohibition order under section 56 FSMA banning him from performing any functions in relation to regulated activities. The FCA considered Mr Flowers' conduct fell short of the minimum regulatory standards and that he was not fit and proper because he lacked the requisite integrity and reputation as required under FIT 1.3.

The FCA considered that it was both necessary and appropriate to impose a prohibition order on Mr Flowers, to protect and enhance the integrity of the UK financial system.

Following the announcement by the FCA that it has now concluded its enforcement investigations into the Co-op Bank and related individuals, the Treasury has announced it has launched an independent review into how the bank was regulated by the FSA focusing on the period between 2008 and its near collapse in 2013.

It is obviously interesting, and has attracted criticism, that the Final Notice focuses only on Mr Flowers' personal actions, rather than anything relating more directly to his competence and capability to perform the role of Chair at the Co-op Bank. Cynics may question whether this focus was somewhat self-serving notwithstanding the FCA's attempts to distance itself from having "approved" Mr Flowers as Chair.

Although hypothetical, it is also thought-provoking to consider how the outcome might have differed had the senior managers regime been in force at the time. Depending on what prescribed or other responsibilities had been assigned to Mr Flowers, it may have been easier for the FCA to show breaches of specific Conduct Rules and/or the duty of responsibility. This might have enabled a quicker outcome more closely linked to the particular failings at the Co-op Bank.

The boards of banks and other regulated firms may now want to give consideration to the expectations of their Chairs, the extent to which these are clearly articulated (which in Co-op Bank's case they were) and whether their Chairs are meeting those expectations.

With thanks to Jaime O'Connell (trainee) for her work on this alert.