The Kelly Review

Failings in Management and Governance

An Independent Review of The Co-operative Bank

The Kelly Review (published 30 April 2014)

On 12 July 2013 The Co‑operative Group and The Co‑operative Bank announced an independent review, chaired by Sir Christopher Kelly, into the events that led to the recent announcement of The Co‑operative Bank's capital action plan to address its £1.5bn capital shortfall.

The Report describes in some detail what happened, identifies the root causes and draws the lessons. It looks at the decision to merge The Co-operative Bank with the Britannia Building Society in 2009, the abortive attempt to replace the Banking Group’s IT platform, the proposed acquisition of the Verde assets from Lloyds Banking Group, and the attempt to bring the Bank closer to the Group under Project Unity. It also examines the Bank’s management of its loan book, its approach to risk management and capital, its sales of payment protection insurance, the governance of the Bank and the Group and a number of other issues.

The Report is based on more than 130 interviews with current and former employees, Board members and others and on the examination of internal papers and external reports. The Review has also received written evidence from a number of individuals and organisations. It has been carried out independently from all other reviews touching on the same events.

Commenting on the Report, Sir Christopher Kelly said:

“This report tells a sorry story of failings in management and governance on many levels.

“The roots of the shortfall lie in a merger between the Bank and the Britannia Building Society which should probably never have happened. Both organisations had problems. Bringing them together exacerbated those problems. It might have worked if the merged organisation had received first class leadership. Sadly it did not. The Co-operative Bank executive management failed to exercise sufficiently prudent and effective management of capital and risk. The Banking Group Board failed in its oversight of the Executive. The Group Board failed in its duty as a shareholder to provide effective stewardship of an important member asset. Collectively they badly let down the Group’s members.

“The lessons we set out are far from novel. It does no credit to those involved that they must be learnt again. I hope my report will help the Group and the Bank in their efforts to rebuild organisations of which their members and customers can once again be proud.”

Terms of reference of the Review:

  • To investigate the robustness and timeliness of the Board's and the management's strategic decisions which ultimately led to the need to adopt a Capital Action Plan by the Co operative Bank to address its £1.5bn capital shortfall;
  • To look at the management structure and culture in which those decisions were taken; lines of accountability which governed those decisions; and the processes which led to them;
  • To identify lessons which can be learnt to strengthen The Co-operative Bank and the wider Co operative Group, and the co-operative business model generally;
  • To review the financial accounting practices of the Bank, the representations made by management to the independent auditors regarding these practices and the role of the independent auditors in reporting to the Audit Committee of the Bank and giving an opinion on its financial statements;
  • To publish the findings of its review to members, colleagues and other key stakeholders.