Category: IFSRA

IFSRA – Swimming without a swimsuit

The performance of the Irish Financial Regulator is allegedly monitored by two panels; industry and consumer.

Judging from the two articles below it is difficult to believe they are talking about the same organisation. The third piece is a letter I wrote to the Irish Times (unpublished) in response to the inconsistency of the panels.

Criticism of regulator is misconceived

While both industry and the Financial Regulator want strong players in the IFSC, it can never be a zero-failure environment, writes James Deeny

Sept 4th 2007

The recent coverage of the problems associated with the Irish subsidiary of Sachsen LB and the associated implied criticism of the Irish regulatory regime have failed to cover some crucial aspects of international regulation in Ireland.
Fundamental lessons were learned from the Bank of Credit and Commerce International (BCCI) fiasco nearly 20 years ago when that bank structured itself in such a way that there was no obvious primary regulator.
International financial regulation now clearly defines where the buck stops through a universal principle of home country consolidated regulation of the worldwide operations of a banking group. In the case of Sachsen this consolidated supervision occurs within the German regulatory system.
To say that the Irish Financial Regulator was seeking to distance itself from the problem is totally unfounded. It was for the Financial Regulator here to supervise the compliance with national and European banking regulation of the Irish subsidiary Sachsen LB Europe solely and that is what it did.
There are obvious lessons to be learned from the Sachsen situation, both in Ireland and, more particularly, in Germany. The German regulatory system is fragmented and does not benefit from a single regulatory regime similar to that established in Ireland in 2003. One can legitimately ask whether it was prudent to allow a regional savings bank to engage in capital market operations on the scale involved and whether such a bank had the necessary experience and controls in place to engage in such activity. That was for the German regulator to decide.
Now, we can expect the bar will be raised both in Germany and in Ireland regarding the scrutiny of bank licence applications and their associated business cases, especially with smaller banks involved in capital market transactions.
However, the system of home country regulation that was put in place has worked and the problems that arose have been addressed and resolved in Germany.
We also need to bury another dangerous media misconception that Ireland operates a “light touch” regulatory regime. This is a million miles from the reality. The fact is that the Irish Financial Regulator operates to world-class regulatory standards where increasingly its day-to-day regulatory work is driven by EU and international regulation.
I would seriously doubt whether any of the over 10,000 firms and funds regulated by the Irish Financial Regulator would categorise their regulation as “light touch”.
The Financial Services Consultative Industry Panel continually talks to the Financial Regulator, seeking to achieve a top quartile standard in financial regulation, balanced with international competitiveness. Light regulation is on neither of our agendas.
The use by some media commentators of easy catchphrases to help describe the complex matters that have arisen equally have no place in a serious debate on these issues. They only add to the potential misunderstanding that can arise and, indeed, can also lead to unnecessary reputational damage internationally.
Since its formation in 2003 the Financial Regulator has undertaken an immense workload in completely updating its authorisation, fitness and probity, sanctions and inspection protocols. It has significantly raised the bar for all domestic and international financial service providers. The reality is that it is doing a good job.
In the international wholesale financial services market, Ireland ranks in the top four in the EU. Ireland punches well above its weight in the sector, with a highly developed skill set across a range of financial services.
In the main, the players involved are strong international financial names operating under a robust Irish regulatory regime. The sector is a huge job creator and wealth generator for Ireland.
The IFSC is a financial crossroads and given the scale of the operations involved, we can expect at the margin that similar situations to Sachsen will arise where weaker players run into difficulty.
We need a mature understanding of this. As the saying goes when the tide goes out you find out who is in the water without a swimsuit and this unfortunately has been the case with Sachsen.
Fundamentally there is no difference between industry and the Financial Regulator in wanting strong players in the IFSC; however, it can never be a zero-failure environment.
James Deeny is chairman of the Financial Services Consultative Industry Panel which, under the Central Bank and Financial Services Act, provides independent input to the Financial Regulator on new regulation.
© 2007 The Irish Times

Regulator refuses to detail overcharging by banks

Paul Cullen, Consumer Affairs Correspondent

une 18th 2007

The State’s financial watchdog has refused to provide details of overcharging by individual banks even though its own consumer panel requested the information.
The Irish Financial Services Regulatory Authority has also refused a request to oblige banks to show gross interest with Dirt tax separately deducted on statements.
While the regulator’s consumer panel says it is “virtually incredible” that this issue is not addressed immediately, the regulator says the matter is closed until its Consumer Protection Code is reviewed next year.
The Financial Regulator also declined requests to report more frequently on the sanctions it imposes on financial services companies and to draw up a code of practice to deal with shortfalls on endowment mortgages.
In a review of the regulator’s performance, the panel accuses it of slowness and excessive caution. “It communicates with such caution that it gives the impression that if it can find a reason not to act, this will be the preferred outcome. It appears to seek complexity and obstacles rather than to see consumer-oriented solutions to current and emerging problems.”
As well as criticising the regulator’s “unsatisfactory” performance in a number of areas, the panel says consumers need to be more clearly informed about where complaints should be made. It says consumers, and the panel itself, receive no information about the enforcement of regulations.
However, the chairman of the panel, accountant Brendan Burgess, said the performance of the regulator in dealing with some issues had improved since the review was completed earlier this year. “We hope they will continue to speed up.”
The regulator had also started responding faster and more appropriately to questions from the panel. “And even if our suggestions are generally rejected, at least they are rejected more promptly,” he added.
Overall, the regulator had got the balance right between protecting consumers and keeping the level of regulation appropriate, he said. The consumer was “far better off” than before the authority was set up.
The panel also expresses concern about the sums spent by the regulator on outside legal advice.
© 2007 The Irish Times

4th Sep 2007

Madam,

The chairman of the Financial Services Consultative Industry Panel, James Deeny, blames the German Financial Regulator for the recent problems associated with the Irish subsidiary of Sachsen LB (Opinion, 4th Sep.).

In addition, he blames the media for misunderstanding the complex matters dealt with by the Irish Financial Regulator, a situation, he claims, that could lead to unnecessary reputational damage internationally.

According to Mr. Deeny the Financial Regulator is ‘doing a good job’.

Mr. Deeny’s sister panel, the Financial Services Consultative Consumer Panel, has an entirely different view of the regulator’s performance. In an Irish Times report (June, 18th) the panel made the following criticisms of the regulator.

Refused to provide details of overcharging by individual banks.

Refused a request to oblige banks to show gross interest with Dirt tax separately deducted on statements, the panel described this refusal as ‘virtually incredible’.

Declined requests to report more frequently on the sanctions it imposes on financial services companies.

Slowness and excessive caution giving the impression that if it can find a reason not to act, this will be the preferred outcome.

The panel chairman, Mr. Brendan Burgess, in a desperate attempt to be positive made the pathetic comment. “Even if our suggestions are generally rejected, at least they are rejected more promptly.”

Even allowing for the separate functions of these panels, it is still difficult to believe they are talking about the same organisation.

Perhaps, to paraphrase Mr. Deeny, when the tide goes out we will discover who’s been swimming without a swimsuit.

Yours etc.

Anthony Sheridan

Financial Regulator – Two views

Below is an editorial published in the Irish Independent in response to the ‘overcharging’ of customers at Ulster Bank.

Thursday August 23 2007

There is something Pythonesque about the vision of Ulster Bank chiefs sitting in emergency session to discuss their over-charging of customers. Do they — and the other 34 banks and finance firms who have been forced to pay back money that they have “borrowed” from their customers — wonder aloud how this terrible thing could have happened?

Do they express amazement that the checks and balances, so efficient when tracking down customers who do not pay on time, or who exceed their overdraft agreements, somehow failed to function properly when required to work the other way around? To a senior bank official, it must feel as though his Porsche or Merc has inexplicably re-fused to reverse into the executive parking space.

The bank has admitted that it wrongly billed customers for insurance policies on loans that were paid back early and has been suitably excoriated by the Consumers’ Association for allowing the overcharging to happen and failing to immediately disclose its magnitude.

One curious aspect is the fact that some 25,000 people apparently failed to notice that they were continuing to pay what was essentially protection money on a loan they had already paid off in full.

Widespread overcharging, estimated at about €167m has been exposed by internal examinations by the offending institutions, who have been ordered to do so by the Financial Regulator.

Where would we be without him?

The following was my reply to the editor. (Not published)

Sir,

On the assumption that you were not being facetious when you praised the work of the Financial Regulator in last Thursday’s editorial (23rd Aug.), you should be aware of the following.

The Financial Regulator was established in May 2003 after a series of very serious scandals within the financial sector, many of which involved direct theft from customer’s accounts. Consumers were assured that a new era of accountability, transparency and enforcement was at hand. This has not happened.

The regulator was given the power to impose a fine of up five million euros on errant institutions. But even this pathetic fine, which represents about two days profit for some banks, has never been imposed. Indeed, Ireland is unique in the world in that not a single financial institution has ever been fined or charged for wrongdoing since the establishment of the State in 1922. This fact alone should give pause for serious reflection, but there is worse.

One of the stated principles of the Financial Regulator is to

“Help consumers to make informed decisions on their financial affairs in a safe and fair market.”

This does not happen.

By law, the Financial Regulator is forbidden from disclosing any information whatsoever on the nefarious activities of financial institutions. (S.33AK of the Central Bank Act, 1942 as amended by the Central Bank and Financial Services Authority of Ireland Act, 2003).

This law is strictly enforced by the regulator even to the point of refusing to discuss scandals that are already in the public domain. Obviously, this blanket secrecy puts consumers at a serious disadvantage while providing dodgy financial institutions with watertight protection.

You ask the question; “Where would we be without him? (Financial Regulator)” A great deal better off is my answer.
Yours etc.

Anthony Sheridan

Dublin operation – A sloppily-run pig sty

John McManus, writing in today’s Irish Times, (Sub. required) warns that Dublin’s IFSC is in danger of becoming a financial El Paso. Too late, John, the centre is already well known as the ‘Wild West’ of European finance.

With major understatement, he describes the €17.3 billion hit on a German bank that originated from Ireland’s Wild West as

“A little embarrassing.”

Another report by Derek Scally in the same paper is more hard hitting.

It seems that Germany’s financial regulator, BaFin, is under fire for ignoring warnings in a 2005 report by KPMG that SachsenLB’s Dublin subsidiary was involved in some very dodgy ‘financial juggling’.

One financial expert described the Dublin operation as

“A sloppily-run pig sty”.

Mr. Jochen Sanio, head of Germany’s financial regulator is also under pressure to explain his role in the affair. Bet he wishes he was the Irish regulator, who never explains anything.

Germany’s taxpayers will be none too pleased either on hearing that they will be picking up the €17.3 million tab, essentially, as a result of the ‘anything goes’ attitude of the Irish Financial Regulator.

A corrupt and secretive financial market

According to the Irish Financial Regulator one of its main tasks is to –

Help consumers to make informed decisions on their financial affairs in a safe and fair market.

This promise has a hollow ring to it in light of the latest rip off by an Irish bank.

Rip offs by Irish financial institutions have become so common now that when news of the latest ‘overcharging’ by Ulster Bank (2nd item) was reported yesterday, the regulator didn’t even bother to make comment.

Over the last 15/20 years Irish banks have ‘overcharged’ their customers (victims) by a massive €167 million. Only a fool would believe that these activities are all down to ‘error’ rather than deliberate and well organised scams.

Despite this, not a single bank has ever been punished by the Financial Regulator. Not a single bank official has ever been questioned by the police never mind actually charged with criminal behaviour.

Michael Kilcoyne of the Consumers Association of Ireland suggested that there should be a fine of several million Euro imposed on these organisations. (RTE News, 3rd item) He is obviously unaware that the regulator already has the power to impose a fine of up to €5 million on errant financial institutions. But even this pathetic fine, which equates to about two days profits for the larger banks, has never been imposed by the regulator.

Not only does the regulator refuse to punish banks, it also affords them valuable protection through a policy of total secrecy regarding their many dodgy activities.

Consumers rely solely on the media or whistleblowers for information to help them make informed decisions on their financial affairs in a corrupt and secretive financial market.

Dublin – A conduit for dodgy deals?

Until I read the article below in today’s Irish Times I had never heard of conduit funds. As always, however, when I hear the Central Bank/Financial Regulator refusing to make comment I begin to take notice.

A quick Google search provided a useful definition; essentially, conduit activity is simply a tax avoidance mechanism.

Further research led me to this report in BusinessWeek and finally to an RTE report which tells us that Ormond Quay, the Dublin based investment vehicle whose difficulties caused the near collapse of the state bank of Saxony, made a gross profit of €7.99 million last year but paid only €250 in tax.

Ah yes, Dublin, IFSC, tax avoidance/evasion, financial black holes, invisible/ineffective financial regulator – The New York Times got it right when it described Dublin as the Wild West of European finance.

Interesting to note the Central Bank referring to the Financial Regulator as its ‘regulatory arm’.

As my emphasis in the article points out the Central Bank/Financial Regulator are still maintaining their tradition of buck passing, denial of responsibility and secrecy.

Regulator has no role on ‘conduit’ activity

The Central Bank has said it has no role in the regulation or authorisation of highly leveraged “conduit funds”.
It a statement yesterday it said that its regulatory arm, the Irish Financial Services Regulatory Authority, was not responsible for regulating Ormond Quay or the two other conduit funds managed in Dublin by Sachsen LB Europe.
“In relation to Ormond Quay, this so-called ‘conduit’ activity is not regulated by the regulator,” it said. It added that the regulator’s involvement had been limited to ensuring that the prospectus for one of the funds indicated that it was not regulated by the authority.
The bank refused to comment on how and when it became aware of the problems at Ormond which surfaced over the weekend.
It also refused to say whether it was aware of the extent of this type of unregulated activity taking place out of Dublin or if it was concerned about the health of similar Dublin-based funds.
It would not comment on whether it had contacted any of these funds to establish their potential liabilities.
“As part of our regulatory role, the financial regulator is closely monitoring developments in the market at present. We are maintaining ongoing dialogue with regulated firms, and with other regulators,” it said.
The bank also refused to comment on whether it had become aware of the problems through its role as the regulator of Sachsen LB Europe, which is based in the International Financial Services Centre in Dublin.
The Department of Finance referred questions to the Central Bank.
© 2007 The Irish Times

AIB: Still ripping off customers with impunity

Once again AIB has been ripping off its customers, (sub required) this time the victims are elderly and disabled customers.

In July 2000 AIB ‘overcharged’ 43,000 elderly and disabled customers by about €93 each. The total amounted to €4 million.

Age Action Ireland said it was concerned that pensioners were the latest group to have suffered as a result of the bank’s overcharging mistakes.

A spokeswoman for the Financial Regulator said it was deeply disappointed at the news but could do nothing as the ‘overcharging’ predates the legislation giving it power to fine for ‘overcharging’.

A spokeswoman for AIB said the bank had put procedures in place to prevent such ‘mistakes’ in the future.

Comment:

AIB ripped off its customers again and was found out, repaid the money and said it had put procedures in place to make sure it never happened again. This is what AIB does every time it rips off its customers.

The latest victims expressed concern that so many people are ripped off by this particular bank. Customer concern is always ignored by the offending financial institution, the Financial Regulator and the State.

The Financial Regulator said it was deeply disappointed but there was nothing it could do. The Financial Regulator has never taken any effective action against any rogue financial institution since it was established in 2003. None of its predecessors, going back to the establishment of the state in 1922, has ever taken any effective action against rogue financial institutions.

Financial institutions operate in the Republic of Ireland in supreme (and justified) confidence that they have nothing to fear from an ineffective and weak financial regulator.

Man of steel turns to straw

When Joe Meade was the Data Protection Commissioner he repeatedly threatened the Government with High Court action for using an ‘invalid’ ministerial direction to unconstitutionally store citizens’ phone, fax and mobile call data for three years.

Somehow, Joe never got around to actually taking the State to court. Eventually the Government gave him the job of Financial Services Ombudsman.

In his new job, Joe retained his macho image. He was described as a man of steel, a man to be feared, a man who wouldn’t allow anybody tell him how to run his show (Irish Times, 8th April 2005).

In one report he’s quoted as saying,

“I intend to name and shame institutions which don’t co-operate with my office on serious issues, particularly where they relate to customer complaints which should have been rectified by the institution before coming to my attention.”

Unfortunately, Joe talks the talk but doesn’t walk the walk when it comes to protecting the interests of consumers. He steadfastly refuses to name the rogues, chancers and fraudsters who operate with virtual impunity in the Irish financial sector and so exposes consumers to potentially serious financial loss.

Here are some of the excuses and contradictions that Joe has made in recent years regarding the naming and shaming of these ruthless chancers.

Irish Times, 8th April 2005.

It’s not my intention to shame anybody.

Irish Times, 17th May 2005.

Considers naming organisations in his annual report as an important part of his function.

RTE 16TH January 2007 (2nd item). Asked to name a particular institution that had taken advantage of an old lady

In due course I may name that institution…the main thing is that compensation has been awarded…I work at the moment on a very non legal basis…If I name every complainant or every institution I may not get the same cooperation…I’ve referred the matter to the Financial Regulator.

Irish Times, 9th February 2006. Joe was planning to name a building society for over charging a customer but decided against it when the society said it was prepared to legally challenge the matter. He referred the matter to the Financial Regulator.

Irish Independent, 30th January 2007.

A spokesperson defended Joe’s secrecy policy.

“He has concerns about naming institutions alone as complainants may also have to be named in line with natural justice. This could deter complainants from coming forward with legitimate complaints”

Probably realising that this statement was a gross insult to the intelligence of consumers the spokesperson descended into (more comfortable) bureaucratic speak.

“His over-riding concern as ombudsman is to ensure that the integrity of the Financial Services Ombudsman scheme is manifest to everyone, be it a complainant, a financial service provider, the Financial Regulator, the international financial community, the media, the general public or our legislators.”

RTE News at One, 3rd July 2007 (2nd item).

On being asked why he doesn’t name names.

I’m constantly reviewing this area…I want to have legal protection where I name…complainants might be put off…I refer cases to the Financial Regulator.

There are two principal themes running through Joe’s excuses. Firstly, he keeps suggesting that if he only had the legal power he would protect the consumer but the facts completely contradict his pleas of powerlessness.

On the 8th April 2005 we are told that he has power of entry and seizure, that the High Court is the only external party that can overturn his decisions.

On 17th May 2005 we are told that he has extensive legal powers.

On the 4th August 2006 we learn that he can require employees to provide information under oath, enter premises and demand the production of documents.

Secondly, he keeps telling us that he refers cases to the Financial Regulator, passing the buck as it were. This is a clever strategy because the Financial Regulator is even more secretive than Joe’s outfit.

Under legislation (S.33AK of the Central Bank Act, 1942, as amended by the Central Bank and Financial Services Authority of Ireland Act, 2003) the greedy vultures that infest the Irish financial sector enjoy almost total protection.

Neither is the regulator shy about using this handy piece of legislation to send consumers packing when they have the cheek to ask for the names of dodgy financial operators. Joe, of course, must be well aware of this brick wall for consumers.

No matter what excuses Joe comes up with, no matter what law the Financial Regulator hides behind, the stark reality remains that consumers are put at serious risk of being ripped off for so long as these two organisations refuse to name names.

The Financial Services Ombudsman became operational in 2005, on April 1st – An entirely appropriate date.

It's all in the mind

Cologne Re, the Dublin based reinsurer at the centre of a malpractice investigation is in the process of winding up its operations here in Ireland.

Its former chief executive, John Houldsworth, is accused of arranging fraudulent contracts to boost the profits of one of its clients, the giant insurance company AIG.

Houldsworth is awaiting sentence in America on conspiracy charges.

Financial regulators in America, Australia, Germany and the UK investigated and took action against those involved in the fraud. Incredibly, despite Dublin being the centre of the conspiracy, the Irish Financial Regulator took no action whatsoever.

For those of us familiar with how things are done in Ireland this comes as no surprise.
However, much of the global financial community is now beginning to see Ireland as a rogue market or as the New York Times put it, “The wild west of European finance.”

In a pathetic attempt to explain its failure to act the Financial Regulator CEO, Pat Neary, said there was

“no evidence other than what was in the head of John Houldsworth.

Now that’s bizarre.

The Financial Regulator, banks and credit unions

There’s something very odd going on between the Financial Regulator and the League of Credit Unions.

It was recently reported in the Irish Independent that the regulator is demanding all 435 credit unions in the country conduct an audit of their investments. This is despite the fact that the valuation of investments is already included in the annual report of each credit union.

I’m not sure of this but I think the critical words here are ‘valuation’ and ‘audit’. Valuation suggest that the regulator has a total value figure for investments but no detailed list of named investments held by each credit union. An audit, I presume, would provide such valuable details.

Obvious questions arise.

Why does the regulator need this information?

Would the information be made available to credit union competitors?

Has the regulator demanded such information from banks and other financial institutions?

To my knowledge, this is not the case.

Credit unions have always been seen as the ‘poor man’s bank’ and certainly that’s how the regulator treats this important social organisation, the League was not consulted on this latest demand.

A spokesperson dismissively commented that while the regulator consults with the League on policy matters is does not do so on operational matters and this was an operational matter

(Translation: How dare you question the regulator, obviously you people don’t know your proper place in the scheme of things).

Tension has been building for some time now between the regulator and the League. In April 2005 the League called on the regulator to clarify its approach to regulating the movement, demanding that it should “clearly annunciate what exactly it means by an appropriate regulatory system.”

Again, in July 2006 Financial Regulator CEO, Pat Neary questioned what he called ‘aggressive lending’ by some credit unions.

League CEO Liam O’Dwyer said that the way the movement was being regulated was a serious concern to members of the league. He comprehensively rebutted Neary’s comments with the following points.

Credit union lending had grown by 7pc last year compared with mortgage lending of 26pc and bank driven personal lending of 28pc. Mr. O’Dwyer wondered where the emphasis of the regulator needs to be put.

Savings in credit unions were protected by an insurance scheme.

50% of the population were members of credit unions.

The organisation was not for profit and is staffed by volunteers.

Mr. O’Dwyer pointed out that banks were increasingly targeting credit unions and that that is the motive behind the pressure being put on the organisation by the regulator.

I agree with O’Dwyer. Credit unions are becoming a major challenge to the banks and there is plenty of evidence to suggest that the regulator will do whatever is necessary to protect the interests of the banking sector.

Accountability and advice

“I want to get out of here,” he said. “I’ve had enough of it. I’m weary, I’m tired of it. This tribunal has taken over my life,” he said. “This tribunal has been a cancer to me.” The tribunal has had “a massive impact” on him emotionally and intellectually.

Michael Lowry’s plea to be rid of the Moriarty Tribunal is, I think, genuine. His claim that the tribunal is like a cancer is evident when he appears on television. His face is drawn and anxious and he is, at times, on the verge of tears as desperately tries to escape from his self inflicted ordeal.

We can only hope that Michael and his political colleagues will eventually get rid of this grossly inefficient, expensive and sometimes cruel method of (non) accountability and submit themselves for judgement through the courts, just like ordinary citizens.

And speaking of accountability, I see that the so called Financial Regulator has issued yet another leaflet advising consumers to shop around.

When are we going to see a leaflet listing the financial institutions who have robbed their customers so that consumers can do their business in a safe financial environment?