Clifford Chance (CC) has advised the Co-Operative (Co-Op) Bank as the high-street lender avoided a substantial fine following an investigation by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) for breaching listing rules.
The joint investigation found that the bank ‘fell short of its responsibility to be open with regulators’. The PRA separately published the result of its enforcement action, finding the co-operative had failed to comply with principle three of the Principles for Business during July 2009 to December 2013, which requires a firm to handle its affairs responsibly and with adequate risk management. In particular the bank had what was described as a ‘three lines of defence risk management model’ that was ‘flawed in design and operation’.
During March until June 2013, the bank also breached the FCA’s listing rule on not publishing misleading information. The lender stated that ‘adequate capitalisation can be maintained at all times even under the most severe stress scenarios’ when in fact it did not have sufficient capital to meet its revised capital planning buffer. Although such failings would normally warrant a ‘substantial fine’ the FCA has decided against it while the PRA has also, given the exceptional circumstances, issued the bank with a public censure.
CC previously landed a leading role advising the bank on its recapitalisation in 2013 due to a conflict of interest at Allen & Overy, with capital markets partner Iain Hunter and insurance and corporate partner Hillary Evenett advising.
The Magic Circle firm has also led on a number of high profile investigations of late including partner Simon Davis’ report into the FCA leak of an insurance industry inquiry and acting for Barclays on an FCA investigation regarding foreign exchange manipulation.
Commenting on the case, Georgina Philippou, acting director of enforcement and market oversight, said: ‘This is a serious matter, but exceptional circumstances mean a public censure is the appropriate and proportionate response. It is vitally important that Co-op Bank’s capital resources are directed towards improving its resilience.’
Investigations into senior individuals at Co-op Bank during the relevant period are on-going. On the FCA-PRA findings, CC declined to comment.