The regulators tasked with overseeing Britain’s financial institutions aren’t generally shy about doling out big fines to those companies that have broken the rules - they have meted out billions of pounds worth of penalties in the past few years for PPI mis-selling, market rigging and IT failures.
It's pretty remarkable then that the Prudential Regulation Authority and Financial Conduct Authority have left the ‘serious and wide-ranging failures’ of the Co-operative Bank go unpunished. The bank came close to collapse in 2013 after its credit rating was downgraded by six notches on the back of a £600m loss, but regulators thought a public dressing down would be retribution enough.
‘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 said. ‘This in turn had the potential to weaken the firm and reduce its resilience.’
It also said the bank had ‘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,’ and criticised it for failing to work with regulators ‘in an open and cooperative manner.’ The FCA further censured it for ‘misleading’ statements about its capital position.
Such a damning record of failure would usually leave the two institutions chomping at the bit to dish out punishment, but on this occasion they decided to show mercy. Though the PRA said in normal circumstances it would demand the bank cough up £120m, it concluded that doing so ‘would not advance the PRA’s statutory objective to promote the safety and soundness of the firms it regulates.’
Such a feeble slap on the wrist might seem unfair given the severity of the bank’s misdeeds and the risks they created for shareholders’ and customers’ cash. But retribution for the sake of retribution is admittedly counterproductive.
The bank is currently trying to beef up its capital base, and taking cash out of its coffers right now would simply impede its ability to do that – to the detriment of customers, investors and the economy. And, as chairman Dennis Holt has pointed out, the Co-operative Bank of today isn’t the same organisation that it was two years ago.
Nonetheless the message it sends out isn’t great – that failed institutions can escape punishment if they are too weak to withstand it. No doubt the FCA and PRA will soon revert back to their usual disciplinarian ways in a bid to show they haven't gone soft.