By Mark Kleinman, City Editor
Banking watchdogs are poised to kick off formal probes into last year's crisis at the Co-operative Bank in a move which could lead to significant fines or bans for former directors of the lender.
Sky News understands that the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) are likely to confirm this week that they are commencing enforcement investigations into the circumstances which led to the Co-op Bank requiring a £1.5bn rescue package.
An insider said that statements confirming the widely-expected decisions by the two regulators could come as soon as Monday, although they could yet be delayed.
The move to begin formal enforcement investigations could result in substantial financial penalties being imposed on the Co-op Bank as well as former directors if they are deemed to have been reckless in their stewardship of the lender.
The recapitalisation of the bank, which was approved by bondholders last month, saw hedge funds take majority ownership and the Co-op Group left with a 30% stake.
The FCA and PRA inquiries are among a host of investigations launched into the crisis at the previously mutually owned bank, which was left saddled by hundreds of millions of pounds of toxic assets, partly as a result of its merger with the Britannia Building Society in 2009.
The Treasury Select Committee will continue to take evidence on Tuesday about the ill-fated effort by the Co-op to acquire 630 Lloyds Banking Group branches.
A separate probe commissioned by the Treasury and undertaken by an as-yet unidentified figure from the world of banking or law will also take place.
In a statement in November, the Treasury said its inquiry would "cover the actions of relevant authorities (regulators and government) and the institution itself, including prudential issues, governance (including the appointment of senior staff) and acquisitions".
That investigation will not, however, begin until after any PRA and FCA enforcement action has been concluded. A shortlist of candidates to oversee the probe has been drawn up with an announcement about the chosen individual expected in the coming weeks.
The FCA said in November that it "fully agrees that the investigation should be led by an independent person, and looks forward to supporting them in their work. The FCA will make its full resources available to support the investigation".
It said: "The timing of the investigation must not prejudice any other criminal or regulatory proceedings. The FCA is already undertaking work to establish whether it should commence a formal enforcement investigation and expects to reach a conclusion shortly."
The PRA, the arm of the Bank of England which is responsible for maintaining financial stability, issued an identical statement.
Euan Sutherland, the Co-op Group chief executive, has also paved the way for two further reviews.
One, led by Sir Christopher Kelly, will examine historical events at the mutual, while Lord Myners, the former City minister who recently joined the group's board, will assess the need for future corporate governance reforms.
Neither the FCA nor PRA would comment on Monday.
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