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Regulator defends approval of Flowers as Co-op Bank chairman

A SENIOR financial regulator has insisted that he was not mistaken in approving the appointment of Paul Flowers as chairman of Co-operative Bank, despite his lack of financial skills or experience in chairing organisations, arguing that he was "much more cogent" at the time.

Co-op Bank's attempt to buy a portfolio of branches from Lloyds Banking Group collapsed last year and was followed by revelations it had a £1.5 billion capital shortfall.

Clive Adamson, director of supervision at the Financial Conduct Authority (FCA), told Parliament's Treasury committee: "I don't think it was a mistake in terms of the decision I made at the time,"

But he added: "Today he wouldn't be approved as we would look for more experience."

Rev Flowers was "financially illiterate," Treasury committee chairman Andrew Tyrie claimed.

Mr Tyrie also questioned regulators' decision to give Rev Flowers' 2010 appointment the go-ahead despite his conviction in 1981 for gross indecency.

Mr Adamson, said: "We did not consider that spent criminal conviction to be relevant to his ability to do the role."

He added: "We have to be careful about drawing fair inferences from people's personal lives into their professional lives."

Rev Flowers, a Methodist minister and former Labour councillor, was hired to take control of a "somewhat unruly" 22-strong board at Co-op Bank, Mr Adamson said.

"I did think he had sufficient governance experience to run the board with the help of two deputy chairmen," Mr Adamson said.

However, he later admitted this was not based on his track record.

"He had limited experience in terms of governance role in major firms, if any. My judgement was that he was an individual who could play that role," he said.

Mr Adamson revealed he approved Rev Flowers' appointment after a 90 minute interview following a "box-ticking" vetting exercise by junior staff.

Rev Flowers appeared in front of the same committee in November, where he failed to identify the size of the bank's balance sheet. A few weeks later he was arrested by police investigating the supply of illegal drugs.

Mr Adamson told MPs: "The individual you had in front of you was not the individual I met in 2010. He was much more articulate, much more cogent."

Mr Tyrie said: "Your solution to tame this unruly board was putting in a financial illiterate as chair.

"It seems like a negligent decision, a very poor decision indeed."

Mr Adamson said: "It is hard to find the requisite board experience and financial experience."

He criticised those who had not informed regulators of any of Rev Flowers' past "misdemeanours".

Mr Adamson revealed that both deputy chairmen Rodney Baker-Bates and David Davies voted against the Co-op's decision to attempt to buy the Verde portfolio of branches from part-nationalised Lloyds, which included Lloyds TSB Scotland. Both have now left the board.

He revealed that Mr Baker-Bates had told him in the summer of 2012 that the takeover of the 631 Lloyds branches was a "step too far". The negotiations carried on into 2013.

After a restructuring Co-op Bank is now 70% owned by its bondholders including US hedge funds and just 30% by the Co-op Group mutual.

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