* FCA's Adamson says decision was not a mistake at the time
* Adamson admits in hindsight appointment was wrong
* Appointment approved after single 90-minute meeting
* TSC Chairman Tyrie says regulator "negligent ... very
* Says there were "fundamental flaws" in processes
By Matt Scuffham and Huw Jones
LONDON, Jan 7 (Reuters) - Approving local councillor Paul
Flowers as chairman of Britain's Co-op Bank was a
mistake but only with the benefit of hindsight, the regulator
who played a key role in the appointment conceded on Tuesday.
Flowers, also a Methodist minister who was arrested in
November as part of an investigation into the supply of illegal
drugs, had no banking qualifications but had been given the job
following a 90-minute interview with Britain's banking
Flowers had left the bank - favoured by customers for its
perceived ethical stance - last June, but subsequent events
including its rescue by bondholders became one of Britain's
biggest financial scandals of the past year.
Appearing before parliament's Treasury Select Committee,
Clive Adamson, director of supervision at the Financial Conduct
Authority (FCA) watchdog, initially said he had no regrets over
the decision to approve Flowers, before admitting lessons needed
to be learned.
"With the benefit of hindsight, yes I do think we got it
wrong, but it was the right decision at the time," Adamson said.
The Co-op Bank's shortcomings have also raised fresh
questions about how banks are regulated, still a hot topic
nearly seven years after the start of the financial crisis which
exposed big deficiencies in scrutiny of the sector.
Adamson said Flowers would not have been approved by the
regulator today as it now insists on potential bank chairmen
having a background in financial services.
After the session, Committee Chairman Andrew Tyrie said
Adamson's evidence showed fundamental flaws in the way
regulators previously assessed candidates for senior banking
"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.
The government has subsequently passed laws scrapping the
regulator's "approved persons" regime and replacing it with
tighter rules over the appointment of senior bankers.
Flowers' arrest ramped up pressure on the 141-year-old
lender, which has fallen under the control of bondholders
including U.S. hedge funds following a 1.5 billion pound ($2.5
Adamson was grilled for more than two and a half hours, an
hour longer than he interviewed Flowers in 2010 to decide he was
competent enough to chair the bank. He was repeatedly pressed by
members of the committee to admit that approving the appointment
was a mistake.
Tyrie said the regulator's decision to put a "financial
illiterate" in charge of its board was a "negligent decision, a
very poor decision".
Britain's financial regulators have launched an
investigation into problems at the bank and the probe could lead
to fines for the bank and its former directors.
The investigation may also prove a test case for new rules
being introduced in Britain which mean bankers who are reckless
with customers' or taxpayers' money could face criminal charges
and have bonuses and pensions clawed back.
Adamson said he was disappointed that at no time did anyone
from the bank or public life alert the regulator about some of
Flower's alleged misdemeanours.
Flowers had been interviewed by regulators in 2009 when he
joined the Co-op Bank board as a non-executive director. A year
later he became non-executive chairman.
Before the Co-op Bank appointment, Flowers had been a local
councillor and was influential in the political wing of the
Co-op movement. He did not boast any experience of leading
boards of either banks or other businesses.
Adamson said it was then a "somewhat unruly board" of 22
members and that it was important to have someone in place to
better chair it.
"My view was that Flowers did have the competence to perform
the role of non-executive chairman," Adamson said. "Our view is
that a non-executive chairman does not run the bank but run the
Adamson said he went beyond what was required by meeting
Flowers in 2010 when he was appointed chairman to secure
agreement to appoint two deputy chairmen with financial
experience. He acknowledged that parts of the 2010 interview
with Flowers were a "box-ticking" exercise.
Adamson ran the major retail groups division at the
Financial Services Authority, before becoming director of
supervision at the FCA when it replaced the old body.
During Tuesday's tense evidence session, his judgement came
under questioning, with Conservative lawmaker Andrea Leadsom
challenging whether he was fit to stay in the job
"I believe that I am the right person," he responded.
Adamson told the committee that the regulator had been aware
Flowers had a criminal conviction from 1981 for gross indecency
but decided it was not relevant to his appointment. He said the
regulator was not aware of an additional drink-driving
conviction in 1990.