FIN.

HM TREASURY PUBLISHES FINDINGS ON FSA SUPERVISION OF CO-OP BANK PLC

HM Treasury has published the findings of an independent review into the prudential  supervision of the Co-Operative Bank between 2008 – 2013.

The findings of the report were balanced, but did identify possible weaknesses on the part of the FSA in certain aspects of its supervision of the Co-op Bank.

The report makes a number of recommendations for the PRA and BoE in relation to supervisory policy and practice, including that:

  • the PRA should consider how best to balance its objective of promoting the safety and soundness of PRA-authorised firms  with its particular focus on the harm that firms can cause to financial stability, against the interests of individual classes of depositors or creditors that may end up being adversely affected or exposed to more risk in response to the actions of the authorities;
  • the PRA should continue to pay close attention to any attempts by banks to circumvent regulatory and supervisory requirements, and should focus on the economic substance of transactions, rather than their account treatment or funding;
  • the PRA should consider introducing more formal third-party review of key prudential information supplied by banking groups through their regulatory data returns

The report also queried whether the advent of Open Banking might facilitate a run on a bank if a credit crisis situation arises in the future.

The PRA and BoE have also published a response welcoming the report and outlining replies to its recommendations.

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Roseyna Jahangir