The Prudential Regulation Authority (PRA) picked Mark Zelmer to lead the inquiry, which was initiated by the Treasury in 2013 but has only gone live today following the banning of former Co-op Bank chairman Paul Flowers and the completion of the Financial Conduct Authority's (FCA's) regulatory action.
Zelmer is a former deputy superintendent of the Office of Superintendent of Financial Institutions, Canada, and previously a senior official at the Bank of Canada, the International Monetary Fund and a representative on the Basel Committee on Banking Supervision and the Financial Stability.
The inquiry will look at the actions, policies and approach adopted by the PRA's predecessor body, the Financial Services Authority, and later by the PRA itself. It will focus in particular on the outstanding questions raised by the Treasury Select Committee in its 2014 report on Project Verde.
This was the deal which would have seen the Co-op Bank buy 632 branches of Lloyds Banking Group. Pulling out of the negotiations resulted in Moodys downgrading the bank and led to the departure of chief executive and former ICAEW member Barry Tootell who had been leading the project. He was subsequently excluded from ICAEW membership by the Financial Reporting Council after admitting failure to act with due skill, care and diligence in managing the bank between 2009 and 2013.
That year 2013 also saw the bank nearly collapse when it discovered a £1.5bn black hole in its finances, and lose its chair, Paul Flowers, after he was arrested for class A drug offences.
Announcing the review, Treasury economic secretary John Glen said that it would seek to understand what lessons could be learned from Project Verde. "We are committed to creating a stronger and safer banking system. A vital part of this is ensuring that our regulatory system can learn from past events. The launch of this independent review is a further demonstration of this commitment."
He added that Zelmer would have full access to all relevant documents and correspondence, including the record of government contacts concerning the Lloyds Verde bidding process.
Welcoming the news, Nicky Morgan, chair of the Treasury Select Committee said, "The launch of the independent inquiry into Co-op Bank – more than four years after it was announced – is welcome; but it is hugely overdue...
"Although much has changed since the events in question, a forensic examination of the circumstances of Co-op Bank’s failure will no doubt yield important lessons for the financial regulators."
She added that the committee would want full transparency on the investigation's findings, and she would be writing to Zelmer to tell him of the MPs' expectations.