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Co-op Bank escapes punishing fines for past failings

* Capital should be used to improve its resilience -regulator

* PRA says bank would have been fined 120 mln pounds

* Bank apologises for past failings

* Failings don't reflect how bank run today -Chairman (Adds details of fine that the PRA would have imposed)

LONDON, Aug 11 (Reuters) - The Co-operative Bank will not be fined for failings that helped push the bank to the brink of collapse before it was bailed out by bondholders, Britain's financial regulators said, arguing that capital should be preserved to bolster its balance sheet.

The censure for serious risk management and transparency failings will be particularly embarrassing for the 143-year old bank, which had built its reputation around its ethical credentials.

Co-op Bank is trying to recover from its near-collapse in 2013, when it was hit by a yawning hole in its finances, a drugs scandal, an exodus of top executives and losses from bad commercial real estate loans.

The crisis saw bondholders take control of the bank, with its long-time owner, the mutual Co-operative Group, relegated to a minority holding.

Co-op Bank was the only British lender to fail a UK banking stress test in December and has agreed a plan with the regulator to bolster its capital strength.

The Financial Conduct Authority (FCA) issued a public censure against the bank for breaching listing rules that require companies to ensure published information is not misleading, allowing investors to make fully informed decisions.

The FCA, which undertook the 18-month investigation into the actions of former management and the 2009 merger with the Britannia Building Society, also found that Co-op Bank fell short of its responsibility to be open with its regulators, one of the principles that regulated firms must abide by.

"Investors were left unaware of Co-op Bank's true capital position and we were left in the dark about intended changes to senior personnel at the bank," said Georgina Philippou, the FCA's acting director of enforcement and market oversight.

Separately, the Prudential Regulation Authority (PRA) found that Co-op Bank failed to comply with rules requiring a firm to manage its affairs responsibly, with adequate risk management.

The PRA said that Co-op Bank had a culture which encouraged prioritising the short-term financial position of the firm at the cost of taking prudent and sustainable actions for the longer-term.

The PRA said Co-op's risk management procedures were flawed in design and operation. It would have imposed a fine of 120 million pounds ($187 million) but concluded that imposing a financial penalty on the Co-op would be at odds with its remit to promote the safety and soundness of the firms it regulates.

The FCA also said that Co-op Bank's failings would normally merit a substantial fine. However, it said that in the circumstances it had decided not to impose a financial penalty and to instead issue it with a public censure.

Co-op Bank's Chairman Dennis Holt on Tuesday apologised to customers for the bank's failings and said it is a significantly stronger organisation today under new leadership.

"The board fully accept the lessons that need to be learnt, but it is important to remember these are not a reflection of how the bank is run today," Holt said. ($1 = 0.6407 pounds) (Reporting by Matt Scuffham, editing by Sinead Cruise and Louise Heavens)