New law will make top bankers accountable for failings - Donohoe

Minister for Finance says planned sanctions ‘not about scapegoating’

Paschal Donohoe: “Accountability means not only being responsible for something but also ultimately being answerable for one’s actions.” Photograph: Julien Behal Photography
Paschal Donohoe: “Accountability means not only being responsible for something but also ultimately being answerable for one’s actions.” Photograph: Julien Behal Photography

The Minister for Finance, Paschal Donohoe, has said he plans to introduce laws early next year to give the Central Bank more powers to make top bankers accountable for failings under their watch.

This follows up on a key recommendation in the Central Bank’s review, published in July, of the culture of the State’s lenders in the wake of the tracker mortgage crisis.

"Accountability means not only being responsible for something but also ultimately being answerable for one's actions," Mr Donohoe said at conference on Thursday hosted by the Central Bank and the school of law at Trinity College Dublin.

“Accountability is not about scapegoating and should not be used to create a fear of failure. Regulatory powers to enforce individual accountability will not be used prosecutorially.”

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A planned senior executive accountability regime – similar to rules introduced in the UK in 2016 – is designed to call into account individuals taking unnecessary, calculated risks, who engage in moral hazard, refuse to follow correct process, mislead colleagues, or knowingly commit wrongdoing, the Minister said.

It would limit the ability of individuals to lay blame elsewhere for wrongdoing in the event of a Central Bank investigation. The regulator has the power to fine individuals up to €1 million and bar them from working in important roles in regulated firms.

“I think it is worrying to think that any organisation is not already clearly documenting its key management and governance arrangements, reporting lines or interaction with its parents,” he said.

Mr Donohoe said the new regime is being envisaged to protect firms’ reputations and the industry as a whole. “This regime is not about taking action against any individual who has taken all the steps, caution and due diligence that could be reasonable expected, and is acting in good faith.”

Tracker scandal

In July, the Central Bank published a report into the culture of Irish banks in the wake of the tracker mortgage scandal, concluding that top executives retain too much of a crisis-era “firefighting” mindset to place customers at the heart of all decisions.

The sector is setting up an Irish Banking Culture Board, to be headed up by an independent chairperson, to foster a “customer-focused culture within the sector in order to rebuild trust and confidence”.

“We want to work in partnership with the Central Bank and the financial sector as a change of culture will only work if there is buy-in on all sides,” Mr Donohoe said.

Richard Fox, a senior official with the UK Financial Conduct Authority, said the introduction of a UK executive accountability regime forces a bank to describe for regulators how it is run, and how each manager has a document covering their responsibilities.

“Before then there was a lack of clarity as to who was doing what,” he said, adding that the “tone at the top” of financial firms was improving, but that it needed to filter down organisations.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times