The senior HSBC executive who quit in front of US senators over a multi-billion dollar money laundering scandal has been appointed to keep the Co-op Bank out of trouble.

David Bagley’s key role as director of regulatory risk and compliance will help ensure the bank does not fall foul of regulators again.

The appointment, which was not announced to investors, is a remarkable comeback for Bagley following his public fall from grace.

MPs said the move raises further questions about the Co-op’s judgement as it fights to restore a shattered reputation following near collapse and the sex and drugs scandal surrounding former chairman the Reverend Paul Flowers.

John Mann, a Labour member of the Treasury select committee, said: ‘Considering the man’s reputation, this is probably not the best move for a bank trying to restore its tarnished reputation. But you can normally count on the Co-op to get things wrong.’

Bagley, who joined the Co-op in September, was head of compliance at HSBC as the bank laundered billions of dollars for Mexican drug cartels and rogue states such as Iran and Syria.

US senators said HSBC’s sloppy controls meant the lender assisted terrorism and became the ‘bank of choice’ for drug gangs.

London-based Bagley, who became HSBC’s head of group compliance in 2002, quit during a hearing of the homeland security and governmental affairs subcommittee in Washington in July 2012.

A 335-page Senate report accused HSBC of ignoring warnings and breaching safeguards that should have stopped the laundering of money from Mexico, Iran and Syria.

On Bagley’s watch the report found HSBC failed to monitor £38trillion moving across borders from places that could have posed a risk, including the Cayman Islands and Switzerland.

The failures stretched to dealings with Saudi Arabian bank Al Rajhi, which was linked to the financing of terrorism following 9/11.

The Co-op said Bagley’s appointment had been approved by UK regulators the Financial Conduct Authority and the Prudential Regulation Authority.

But Lord Thurso, a Lib Dem member of the Treasury select committee, said: ‘Because of its difficulties, the Co-op will have difficulty attracting top flight candidates.

‘Having done the job before and had his fingers burnt, Mr Bagley might be extremely vigilant. But it’s a bold gamble.’

The Co-op Bank is now majority owned by US hedge funds following a rescue deal in December 2013 which saved the business from collapse.

A recently released £5.5m national advertising campaign, which stressed the bank’s ethical credentials, bizarrely featured a man with ‘ethics and values’ tattooed on his back.