LONDON, Nov 24 — The Financial Conduct Authority may expand the investigation of Co-operative Bank Plc after the lender’s parent surrendered control of the unit and former Chairman Paul Flowers was arrested, the regulator’s chief executive officer said.

Two days after UK Chancellor of the Exchequer George Osborne ordered an independent probe into the company, Wheatley told BBC Television’s “Sunday Politics” program that a “very broad inquiry” could lead to more regulatory reviews.

Co-Operative Group Ltd., the bank’s parent, relinquished control of the lender to bondholders last month to help plug a £1.5 billion-pound (RM7.81 billion) capital shortfall. The company’s chairman, Len Wardle, resigned last week after leading the board that appointed Flowers.

The investigation ordered by Osborne, using powers under last year’s Financial Services Act, won’t start until it’s clear it won’t prejudice any actions the relevant authorities may take, the Treasury said last week. That would include inquiries by the police as well as potential probes by the FCA and the Prudential Regulation Authority.

Flowers, 63, was arrested as part of a drug probe after he was filmed buying crack cocaine by a UK newspaper, said a person with knowledge of the matter who asked not to be identified because the investigation was confidential. West Yorkshire Police said in a statement that a 63-year-old man had been detained in a “drugs-supply investigation.”

Methodist minister

The Mail on Sunday reported Nov. 17 that Flowers bought crystal methamphetamine and crack cocaine in Leeds, northern England. Flowers, who is a Methodist minister, was Co-Op Bank’s chairman from March 2010 until June of this year.

The bank, based in Manchester, northwest England, said in a statement Nov. 19 it’s facing “difficult times,” though it will emerge “stronger than ever.”

In testimony to Parliament’s Treasury Committee this month, Flowers said he didn’t have the skills of a banker, when asked about his financial experience. He’d worked for four years at Westminster Bank, a forerunner to Royal Bank of Scotland Group Plc’s NatWest bank, before becoming a Methodist minister, and his expertise was probably “out of date,” he said.

“This year has been incredibly difficult, with a death in the family and the pressures of my role with the Co-Operative Bank,” Flowers said in a Nov. 17 statement. “At the lowest point in this terrible period, I did things that were stupid and wrong. I am sorry for this, and I am seeking professional help, and apologize to all I have hurt or failed by my actions.”

Financial experience

At the time of Flowers’s elevation to chairman there wasn’t a requirement that the appointment had to be signed off by regulators, Wheatley said. Officials had urged the Co-op to appoint others to its board who had greater financial experience, he added.

“Today it would be different,” he said. “It wouldn’t happen in the same way.”

Regulators pressed Co-Operative Group, which has businesses ranging from supermarkets to funeral parlors, to close the capital shortfall at the bank following the failure of its bid for more than 600 branches owned by Lloyds Banking Group Plc, a deal that would have more than doubled its number of outlets.

Wheatley said regulators had raised issues with the bid.

“We were constantly pushing back,” he said. “They withdrew ultimately when the questions we were asking they couldn’t answer.”

Separately, a spokesman for Business Secretary Vince Cable said he had sent a report to the FCA on small and medium-sized business lending. That report criticizes state-owned Royal Bank of Scotland for hurting small businesses, the Sunday Times reported today, citing a copy. — Bloomberg