Acting to stop harm: the FCA and Appointed Representatives
The implications of adopting a “short-termism” approach for company decision makers have been highlighted in the PRA’s decision to prohibit two executives from the Co-Operative group.
Many of us followed the trials of the Co-operative Bank Plc (“Co-op Bank), which was ruled in August 2015 by the PRA to have breached Principle 3 of the Principles for Business, in that was found to have failed to take reasonable care to organise and control its affairs responsibly and effectively, and did not incorporate adequate risk management systems. The PRA has now examined the conduct of two of the senior executives within the Co-operative Group, Barry Tootell, the former Chief Executive (CEO) of the Co-op Bank and Keith Alderson, the former Managing Director of the Co-op Bank’s Corporate and Business Banking Division. Both have been prohibited from holding a Significant Influence Function in a PRA Authorised firm for breaches of the Statements of Principle and Code of Practice for Approved Persons (APER). Both were also handed down significant fines.
The PRA examined the conduct of both individuals whilst they held their positions of responsibility within the Co-Op Bank. Mr Tootell held the role of Director (CF1) and CEO (CF3), both controlled functions, between January 2009 and May 2013. Mr Alderson held a CF29 (significant management controlled function holder) and director (CF1) controlled function holder role during a period spanning several years, from 2007 to 2013. These roles were held during the period for which the Co-Op Bank was found to have breached Principle 3; the PRA considered that, in their actions or omissions, they both (during slightly different periods), breached Statement of Principle 6 of APER, in that they did not exercise due skill, care and diligence in managing the business of the firm for which they were responsible in their controlled functions.
The PRA made a range of findings, but were particularly concerned about Mr Tootell’s approach to managing the Co-Op Bank’s finances, which, in the PRA’s view, was carried out in a manner which was incompatible with the bank’s own stated cautious risk appetite. It ruled that Mr Tootell was central to a culture within the Bank which encouraged prioritising short term sustainability without consideration of the bank’s long term financial viability.
One of the PRA’s principal concerns about Mr Alderson’s conduct was his failure to take adequate steps to carry out a proper risk assessment in relation to the bank’s merger with Britannia Building Society, or appropriately escalate risks he had identified. As a result, the PRA opines, the risks could not properly be considered, and nor could the appropriate actions be taken to mitigate them.
What is notable about this case is the severity of the sanction, which demonstrates the PRA’s stance on the breaches of APER committed by Messrs Tootell and Alderson. Whilst emphasising that there was no finding of dishonesty or lack of integrity, or suggestion that there was any deliberate or reckless breach of any regulatory provisions, the PRA enforced a serious sanction, being prohibition from holding a Significant Influence Function in a PRA Authorised firm. Further to that, substantial financial sanctions were imposed, being a fine of £173,802 for Mr Tootell and £88,890 for Mr Alderson, both of which sums had been reduced by 30% for an early settlement.
Andrew Bailey, Deputy Governor of the Bank of England and CEO of the PRA, has emphasised the PRA’s public protection role, in stating that “banks that are not well governed have the potential to pose a threat to UK financial stability. The actions of Mr Tootell and Mr Alderson posed an unacceptable threat to the safety and soundness of the Co-Op Bank which is why we have decided a prohibition is appropriate in these circumstances”.
This emphasises the scrutiny to which senior managers within financial institutions are subject; this may become even more evident when the Senior Managers’ Regime is introduced in March. Whether this regime will have the desired effect of increasing individual accountability is yet to be seen.
For further information, please contact Julie Matheson, or visit our Regulatory Enforcement and Financial Services Regulatory Enforcement and Criminal Investigations pages.
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