Chancellor George Osborne has ordered an independent investigation into events at the Co-operative Bank as regulators consider launching enforcement action.
Osborne is using his powers under the Financial Services Act 2012 to order an independent investigation into the bank.
The investigation has been jointly agreed with the FCA and the Prudential Regulation Authority, who agree there is a public interest in a statutory investigation.
It will be led by independent person appointed by the regulators, yet to be decided, with the approval of the Treasury.
Separately, the FCA and PRA have are both considering whether they should also launch formal enforcement investigations.
The independent investigation will not start until it is clear it will not prejudice any enforcement action.
It will cover the actions of regulators, Government and the Co-op Bank from 2008, including prudential issues, governance (including the appointment of senior staff) and acquisitions.
The Co-op Bank discovered a £1.5bn black hole in June and has been forced into a rescue plan. It has come under fire for appointing Reverend Paul Flowers as chairman in March 2010 after he was arrested last week on suspicion of supplying drugs.
Treasury select committee chairman Andrew Tyrie says: “A comprehensive independent inquiry is much needed. The Co-op Bank’s problems appear to have developed over many years. The scope of the review will need to be wide.”
Independent financial consultant Richard Hobbs says: “This inquiry is nothing to do with regulation and everything to do with politics. I suspect the purpose is to pin the blame on shadow chancellor Ed Balls in the run-up to the next election, given Co-op’s links to the Labour party.”