No changes are required to banking supervision law after the Allfirst scandal at AIB, the Central Bank has said. Its governor, Mr John Hurley, said the $691 million fraud arose due to "serious deficiencies at Allfirst in the US and not as result of legislative weakness".
In a letter to the Minister for Finance, Mr McCreevy, he said the bank had sufficient powers to co-operate and work closely with US regulators in the supervisory and liquidity areas. He added: "As a result of the work carried out with the US regulators, the bank had sufficient powers to impose sanctions through a published written agreement with AIB requiring it to carry out work both in the US and at group level. Accordingly, at this stage the bank does not consider it necessary to recommend any changes to legislation in the area of supervision."
Dated June 18th, Mr Hurley's letter was released under the Freedom of Information Act. When news of the fraud emerged last February, Mr McCreevy asked him to assess the scope of the Central Bank's supervisory duties.
AIB blamed a rogue trader, Mr John Rusnak, for the fraud, a finding confirmed in a report by the former comptroller of the US currency, Mr Eugene Ludwig. Mr Rusnak has pleaded not guilty in the US courts.
Mr Hurley's letter said: "The brief for regulatory assessment was wider than that of the Ludwig Report and covered other peripheral treasury issues. A review of key AIB and Ludwig Report work papers confirmed their reliability and the findings validated in the Ludwig Report."
He added: "The assessment found that serious deficiencies in the areas of management oversight, policies and procedures, internal controls/MIS (management information systems) and internal audit were present in Allfirst in the US.
"As a result of the findings, regulatory action has been taken in relation to AIB and Allfirst by way of a published written agreement by and among AIB plc, Allfirst Financial Inc, Allfirst Bank, the Federal Reserve Bank of Richmond, the Maryland Commissioner of Financial Regulation and the \ Bank."
