8 Questions for future reviews
303. In this report, we have set out a number
of areas that future reviews should examine further. In summary,
the Financial Reporting Council's investigation into the preparation,
approval and audit of the financial statements of Co-op Bank should
consider:
a) How Co-op Bank's approach to recording
impairments differed to that of other banks up until the end of
2012;
b) Why KPMG apparently failed to uncover Co-op
Bank's particular approach to recording impairments;
c) Whether KPMG paid particular attention
to assets acquired in the Britannia merger in its annual audits
from 2009 onwards, given the incomplete due diligence it performed
on them;
d) Whether the accounting treatment used to
record the costs for Co-op Bank's banking IT platform upgrade
was appropriate, given the delayed effect it had on Co-op Bank's
regulatory capital.
The independent inquiry into events at Co-op Bank
and the circumstances surrounding them should consider:
e) Whether the FSA could or should have developed
superior stress-testing tools sooner than it did;
f) Whether superior stress-testing tools would
have led to Co-op Bank's loan impairments being discovered sooner;
g) Whether Co-op Bank's impairment profile—which
appeared to differ from that of other banks throughout the financial
crisis—should have led the regulator to inspect it more
closely prior to 2012;
h) Why the FSA's analysis on the Britannia
merger failed properly to account for the prudential risks attached
to the Britannia assets that have since been uncovered by the
PRA;
i) Whether the work provided by KPMG and JPMC
on the Britannia merger met a reasonable standard, in substance
as well as form;
j) Whether the FSA was made aware of the change
made by Co-op Bank to the accounting treatment for its IT platform
replacement programme in 2010, and whether the FSA should have
foreseen and acted on its consequences—that is, delaying
the effect of the IT programme on the bank's regulatory capital;
k) Whether—given the conclusions of
the independent inquiry on the forgoing points and the FRC's investigation
on the late emergence of Co-op Bank's capital shortfall—Co-op
Bank's Verde bid could or should have been halted sooner;
l) What, if anything, further can be learnt
from the record of the Government's
contacts with Co-op Bank and Group, Lloyds Banking Group, the
regulator, UKFI and NBNK during the Verde bidding process.
| 
