City regulators raised concerns with Barclays’ board in February about a breakdown of trust with the bank over incidents including a £7.5billion Cayman Islands scheme known as Protium to transfer toxic assets off its balance sheet.

Andrew Tyrie, the chairman of the Treasury Select Committee, last Tuesday (3) questioned ex-Barclays boss Bob Diamond over the Financial Services Authority’s worries about Protium and the boardroom culture more broadly.

Referring to the board meeting, Tyrie asked: ‘Did they tell you that trust had broken down between the FSA and Barclays and they didn’t have confidence in senior management?’

Diamond replied: ‘No sir.’

Tyrie is writing to Barclays to obtain the letter sent by the regulator outlining its concerns.

Barclays came under fire last year over the Protium affair, which resulted in a £532million write-off in its 2010 accounts. The bank set up Protium in 2009 to ring-fence billions of pounds of toxic investments, and transferred them to a supposedly ‘third-party’ management team known as C12, that was in fact the group of 45 employees who had been looking after the assets within Barclays.

The 45 former staff members were allowed to leave the bank and establish themselves as a new company – with money lent on cheap terms over 10 years by Barclays. That led to accusations that it was a smoke-and-mirrors exercise aimed at helping Barclays to disguise the full extent of its bad loans and complex mortgage deals.

The move backfired when the FSA insisted Barclays hold a large amount of capital against the loan and in April last year Barclays took back full ownership of Protium. The former employees in C12 received £53.5million for their interest in the vehicle after a year and a half’s involvement.

Former chief executive John Varley was forced to defend the tax-haven vehicle. He told the Mail: ‘What matters is that these are managed assets located and regulated in the US. End of story.’

Tyrie also confronted Diamond with the suggestion that the FSA had raised questions about his suitability for the chief executive’s job at the time of his appointment in 2010.

He said Diamond had been asked to provide  assurances he would persuade his colleagues at the investment bank ‘not to take excessive risks’. Diamond said he had no knowledge of the concerns, adding ‘I got very strong support’ for the appointment.

Shareholders have been frustrated for months after a number of flashpoints including Protium and the £5.75million tax equalisation paid to Diamond. In meetings with chairman Marcus Agius last week after news of the rate-rigging scandal broke, some investors told him they wanted a full overhaul of the board and of pay structures with a timetable for action.
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