The UK banking regulator has banned two bank executives from the industry after finding they failed to exercise due care and skill in their jobs. This represents further evidence of a more obtrusive supervisory approach following last year's introduction of the Senior Manager's Regime for UK bankers. The two bankers, a former CEO and a former MD for Corporate Banking at the Co-operative Bank, have been banned and fined by the PRA of the Bank of England for breaches relating to poor oversight of the bank. The bank nearly failed two years ago. The fines at more than a combined £250,000 for the two execs is significant too.
The supervisor indicated that the former CEO failed to exercise due skill, care and diligence in his role as CFO and later CEO of the bank. More so, the PRA added that the former CEO was centrally involved in culture of prioritising short term positions of the firm at the cost of taking prudent and sustainable actions to secure its long-term capital position. The former MD failed to ensure the bank adequately assessed risk arising across the Britannia corporate loan book, a building society (akin to a S&L in the US) that the Co-op merged with in 2009 and played a role in the later's near collapse.
This episode and the supervisor's response illustrates at least two things. First, the failure of robust risk profile and risk appetite processes at play in strategic transactions such as mergers, where two firms come together, a challenging but necessary consideration for its risk governance. Secondly, and perhaps more telling, the growing importance of culture and conduct as a risk governance mechanism in banking.
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