Financial Regulator

The Regulator's logo

The Financial Regulator (Irish: Rialtóir Airgeadis), officially known as the Irish Financial Services Regulatory Authority is the single regulator of all financial institutions in Ireland and is a "constituent part" of Central Bank and Financial Services Authority of Ireland^[1].^[2]

Mr Matthew Elderfield, formerly head of the Bermuda Monetary Authority,shall lead the organisation from January 2010.^[3] The previous chief executive officer was Patrick Neary, who retired early over the handling of the regulator's investigation into the €87 million in secret directors' loans at Anglo Irish Bank.^[4][5][6]The incumbent before that,had companies he is a director of, fined a total of €3.35 million by his previous employers the Financial Regulator,for risk control and reporting failures.^[7][8][9]

History

Financial Regulator's Head Office in Dame Street, Dublin

The regulator was established on the 1 May 2003 by the Central Bank and Financial Services Authority of Ireland Act 2003. The regulator is a distinct element of the Central Bank and Financial Services Authority of Ireland with clearly defined regulatory responsibilities which cover all Irish financial institutions, including those previously regulated by the Central Bank of Ireland, Department of Enterprise, Trade and Employment, Office of the Director of Consumer Affairs and the Registrar of Friendly Societies. The regulator has a strong role in consumer protection and took over the policing of the Irish Stock Exchange on 1 November 2007 and has day-to-day responsibility for detecting and investigating market abuse.^[10]

Current Developments

"FR's regulatory expertise was lacking in some areas"

Following the failure of existing regulatory structures to prevent excessive lending to the property sector,^[11] consultants Mazars, which were brought in to review operations said that "regulatory expertise was lacking in some areas."^[12]Responding to the highlighted weakness, Brian Lenihan, the Minister for Finance, said "substantial additional staff with the skills, experience and market-based expertise will be appointed. Those recruited will also have the expertise to regulate the international financial services sector."^[13]He also announced that all consumer functions will be '"re-assigned"' to other agencies.^[14] In June 2009 the government announced that a new body, called the Central Bank of Ireland Commission, will replace the the current board structure of the Central Bank and the Regulator.^[15]There can be no denying that the spinning off of the Financial Regulator from the functions of the Central Bank in 2003,has been an outright failure.^[16][17]A July 2009 editorial, in the respected, Sunday Business Post, said "returning the key powers of regulation to the Central Bank will be useless unless there is a fundamental change in the culture of the organisation. This does not require a complete change of personnel, but a change of key personnel."^[18]The Irish Times, the country's "newspaper of record" said "the Financial Regulator has a death wish and its regulatory edict verges on the Pythonesque, eating into what is left of its credibility."^[19]Staff went on strike in November 2009^[20]

Controversy

A serious FR failure

The Financial Regulator was warned by the German regulator, Bafin, as early as 2004 that Sachsen LB's troubled Irish subsidiaries were involved in highly risky and under-scrutinised transactions worth as much as €30bn or 20 times the parent bank's capitalisation.Despite the warning, in 2007 the Regulator approved another Sachsen investment vehicle and two months later the stable of off-balance sheet companies needed a €17.3bn bail-out from the German association of savings banks to keep Sachsen afloat.^[21][22]

The Irish Brokers Association said there was "intense frustration and annoyance" about excessive red tape and the FR refusing to listen to them in 2005.^[23]

The same year the Regulator was criticised for publishing a report, which it was said, read a bit like a promotional brochure for the money lending industry. It included a section devoted to arguing why moneylenders should be allowed to charge as much as they do.(188%-plus collection fees of up to 11%.)^[24]

The New York Times referred to Ireland as the “Wild West of European finance” in April 2005 which was seen to underline the fragility of the Country's Financial Regulation system.^{[25][26][27] [28]}

Their consumer panel stated that the regulator was slow to respond to consumer issues and "appears to seek complexity and obstacles rather than to seek consumer-oriented solutions to current and emerging problems". And it warned that this approach can undermine consumer confidence in the "efficacy of the regulatory process."^[29]

The same month in 2006, a government-appointed panel that consists of banking and insurance representatives revealed widespread dissatisfaction with the regulator’s skills base.^[30][31]

"Sack Board and Management"

The regulator’s industry panel, which provides the regulator with feedback on its charges and policies said the levy on financial institutions for industry funding is ‘‘perceived by industry as cumbersome and bureaucratic’’ and had‘‘major concerns with the quality and cost of the services’’ provided to the regulator by the Central Bank.^[32]

They did not give their consumer panel a copy of the report of the working group set up following the collapse of a stockbrokers,^[33], where some investors were waiting over 7 years to have their claims processed.^[34]When the panel managed to get sight of it, they said it was "extremely deficient"^[35]

In July 2007,the Comptroller and Auditor General called for an independent review of the inspection process for financial institutions carried out by the Financial Regulator.The Comptroller urged the introduction of clearly defined risk categories for individual areas of financial services, so that the appropriate level of supervision required for each institution can be implemented in line with the risk involved.^[36]

Transcripts of phone calls by the Financial Regulator's senior staff suggest they gave tacit approval to the illicit movement of deposits involving Irish Life and Permanent plc. "Okay, that's grand, right I think that's everything". The regulator refused to say whether staff might face disciplinary procedures or sanctions if the transcripts were validated and investigated internally.^[37]

The Financial Regulator knew that Allied Irish Banks were overcharging consumers in FX fees but failed to act for a number of years.

^[38][39] They gave a parliamentary inquiry the "false impression" that they were unaware of it.^[40][41]

No Criticism Allowed

The Financial Services Consultative Consumer Panel, which is tasked with monitoring the performance of the Financial Regulator, said that most consumers have lost “significant amounts of money” due to the inadequacies of the financial regulatory structure. It also criticised the “deficient” response of the regulator to threats to consumers, including the Irish property bubble.^[42]In response they said “It is clear that the actions we took were insufficient and were not taken early enough,”^[43][44][45]

The Fine Gael leader Enda Kenny and finance spokesman Richard Bruton called for the board and senior management of the Financial Regulator to be sacked.^[46][47]Independent Senator,Shane Ross said that the FR was an institution that had lost the faith of the international markets “They think it is actually genetically flawed. That is the problem we’re going to have to attack next.”^[48]

Ernst & Young was hired, to advise the Financial Regulator on the €440 billion bank guarantee scheme in January 2009^[49], despite the fact that Ernst & Young^[50][51] was being investigated^[52] arising from its audits of Anglo Irish Bank^[53] and had also refused to appear before a parliamentary committee following the collapse of the same bank after receiving "legal advise".^[54][55]The then Chief Executive of the Financial Regulator told the same committee that "a lay person would expect that issues of this nature and this magnitude would have been picked up” by the external auditors.^[56] At the same time the lowest tender was not chosen for the fit out of new offices in Spencer Dock in Dublin's docklands.^[57]

In July 2009, they blocked insurers and banks from making any critical statements containing "any references to the Financial Regulator" by means either of "public press statements" or un-approved public references, whether "written or oral."^[58]

The next month,the head of the German Financial Regulator told the Reichstag Finance Committee that the failure of the "terrible" Depfa Bank, which was completely supervised by the Irish Financial Regulator,lead to the collapse of its German parent which forced Berlin to bail it out at a cost of €102 billion. The committee was told that the alternative was a run on German banks and the eventual collapse of the European finance system and “You would have woken up on Monday morning in the film Apocalypse Now”^[59]This is a source of continuing friction with the German authorities.^[60]

Bailout of Depfa Bank cost €102,000,000,000.00

They had to admit that it had issued private warnings to over 30% of credit unions about their arrears levels,but refused to provide full updates on what percentage of credit union loans are in arrears or how quickly they are increasing.^[61]This raised questions about the Financial Regulator's commitment to openness.^[62][63]

Transparency International^[64] have questioned whether the Financial Regulator should continue to have an exemption from Freedom of Information legislation.^[65]Compliance experts^[66][67] have said "The most offensive confidentiality provision in Ireland is the one which protects the Financial Regulator"^[68]The Financial Services Ombudsman,also called for a lifting of the confidentiality applied by the regulator to much of its work.^[69]Other EU regulators have a policy of transparency.^[70][71]

In Autumn of the same year,they were severely criticised in a report marked "strictly confidential and not for publication", commissioned on how it operates,said they were 'poor value for money and had too few specialist staff', compared with its peers.^[72]There were also serious shortcomings in the crucial supervisory area.^[73][74] and the report was particularly critical of the regulator’s senior management structure, concluding that a clear management and oversight framework, which ensures that issues are escalated through the organisation, was “not fully in place”.^[75]

Former Taoiseach Bertie Ahern, in a report in the Financial Times said that his decision in 2001 to create a new financial regulator was one of the main reasons for the collapse of the Irish banking sector and “if I had a chance again I wouldn’t do it”.^[76]

The director general of the Free Legal Aid Centres in October 2009 said, the code of conduct on mortgage arrears produced by the Financial Regulator was "deeply disappointing", and did not offer enough protection for consumers.^[77]

In a speech, the Governor of the Central Bank said that "ignorance and inattention" by FR staff were to blame for regulatory failure.^[78][79]

The Consumer Consultative Panel,in December 2009 said that they were unable to function for almost a year because officials ignored requests for meetings and "we believe it is unacceptable that the board of the Financial Regulator has failed to take responsibility for their stewardship of the organisation during the last six years. This failure undermines their ability to enhance or enforce corporate governance in the wider financial services sector.”It also warned that the reforms announced to date were not sufficient to avert more crisis' in the future.^[80]

References

External links

• Official site
• Consumer Information site