Regulator's Clive Adamson refuses to concede to MPs that appointment of now-disgraced Methodist minister was mistake
The regulator who authorised Paul Flowers's appointment as chairman of the Co-operative Bank faced intense criticism from MPs on Tuesday after he insisted he stood by the decision to allow the now disgraced Methodist minister to take on the role after a 90-minute interview in 2010.
Clive Adamson, head of supervision at the Financial Conduct Authority (FCA), met with incredulity among MPs on the Treasury select committee when he initially refused to concede that the appointment of Flowers – branded a "financial illiterate" by the committee's chairman, Andrew Tyrie – had been a mistake.
Under often hostile questioning, Adamson was asked if he and others were right to stay at the regulator, which has taken over from the Financial Services Authority. "You clearly did get it terribly wrong," he was told by Andrea Leadsom.
The Co-op Bank is now 70% owned by its bondholders, led by US hedge funds, and only 30% by the mutually owned Co-op Group of supermarkets, pharmacies and funeral homes, after a rescue operation to inject £1.5bn into the bank. The committee is examining the aborted attempt by the Co-op to take over 631 Lloyds Banking Group branches and questioning the merger of the bank with Britannia Building Society in 2009.
Tyrie said the regulator's decision to approve Flowers – who was exposed buying illegal drugs last year – was "a negligent decision, a very poor decision". He said Adamson's evidence exposed flaws in the so-called approved persons regime, under which officials are authorised to work in the City. "These flaws contributed to the appointment of a man with no knowledge of finance and no experience of running the board of a major corporation as the chairman of Co-op Bank in the immediate aftermath of the financial crisis," Tyrie said after the hearing.
Tyrie called for the entire approved persons regime to be torn up. "[Adamson] told us that, in the FCA's view, the reforms being applied to banks should also apply across the rest of the financial services industry," he said.
Towards the end of the two-hour hearing, Adamson eventually conceded that the appointment of Flowers – who chaired the bank from mid-2010 and left in June 2013, just as the £1.5bn capital shortfall was identified – was wrong, but said it had been the right decision at the time.
He insisted that the Flowers he authorised was a "more cogent individual" than the one who appeared before the committee last year, when the chairman was unable to give the size of the bank's balance sheet.
Adamson stressed that nothing in the rules at the time required him to interview Flowers. "I didn't think it was a mistake given the information I had at the time," Adamson said. Flowers, he said, was appointed to chair an "unruly" board of 22 individuals, and two deputies were appointed – Rodney Baker-Bates and David Davies – to counter his lack of banking knowledge.
"Do I regret what subsequently happened? Yes I do," Adamson said, conceding that Flowers would not be authorised now. Mark Garnier MP declared himself "almost speechless" after Adamson admitted Flowers had been approved after an hour-and-a-half interview and without his references being taken up. Flowers had disclosed a spent conviction for gross indecency from 1981, but it was not deemed relevant.
Sitting in the public area of the committee room was Lord Myners, who was last month appointed as a non-executive of the Co-op Group and will head the review of its governance. As Myners looked on, Adamson said: "I stand by the decision" to appoint Flowers.
Baker-Bates visited Adamson in 2012 to warn that the takeover of the Lloyds branches was a "step too far", but the negotiations were allowed to carry on for another nine months before they collapsed in April 2013.
Baker-Bates "had blown the whistle", said Labour MP Pat McFadden and, along with the other vice-chairman, Davies, had voted against this so-called Verde transaction. Both have now left the board.
Adamson was also facing questions about the Co-op's merger with Britannia Building Society in 2009, which is now blamed for many of the problems at the bank but for which the FSA's authorisation was not officially required. Adamson said there was no political interference, but there had been support for the co-operative movement.
The tenure of Graeme Hardie as a non-executive director on the Co-op board was also questioned after he took the role despite having been involved in approving Flowers' position as chairman when he was an adviser to the regulator. Richard Pym, chairman of Co-op Bank, said Hardie was doing a first-rate job and should not resign.
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