Ulster Bank has imposed pay curbs on staff responsible for breaches of rules on how much day-to-day cash it holds to cover deposits and rainy-day capital for potential losses – lapses that led yesterday to a €1.96 million fine from the Central Bank.
This is the first time a financial firm fined over a breach of regulations has admitted that the pay of staff involved had been affected in the penalty settlement with the Central Bank .
It is also the first time a bank has been fined for a breach of the regulations on how much capital a bank must hold to protect itself against bad loans.
The penalty is the sixth largest to be imposed by the Central Bank during the financial crisis.
The size of the fine reflects the seriousness with which the regulator treats breaches of prudential banking requirements, the Central Bank said.
Ulster Bank, the Irish subsidiary of majority state-owned UK bank Royal Bank of Scotland, was found to have contravened three liquidity rules and two capital requirements in 2011.
The failure to follow liquidity and capital regulations posed “an unacceptable risk” to a regulated financial company, said the Central Bank’s director of enforcement Peter Oakes.
The banking regulator said Ulster Bank “took appropriate action to ensure accountability” over a €313 million hole in capital buffers designed to protect against possible losses.
This resulted in “individual performance reviews and compensation packages being impacted”, the Central Bank said.
Ulster Bank declined to say how many staff were affected. “We do not comment on specific internal disciplinary procedures,” a bank spokesman said.
Breaches “unacceptable”
Ulster Bank chief executive Jim Brown accepted the breaches were “unacceptable” but pointed out that the bank itself identified and notified the contraventions to the regulator.
“We have since implemented a number of robust measures to ensure similar contraventions are not repeated,” Mr Brown said.
The regulator told Ulster Bank in 2009 to set aside a further €339 million in so-called “Pillar 2” buffer capital against specific risks it faced, but in March 2011 the UK-owned bank reported a €313 million shortfall in this reserve in a report to the Central Bank.
Ulster Bank “immediately received a capital injection” from its UK parent to rectify the breach, the Central Bank said.
RBS, which is 82 per cent state-owned, injected £13 billion (€16 billion) into its troubled Irish bank during the financial crisis to absorb losses arising from the property crash.
Ulster Bank made “significant” changes to how it managed its capital following a review which found the failures arose due to “inaccurate capital forecasting and other capital management control issues”.
On the liquidity breaches, Ulster Bank also failed to impose “haircuts” when it came to calculating the amount of deposits it held on its books.
The reason banks do not count all deposits they hold at a particular time is because retail and corporate depositors may withdraw funds so a more conservative measure is applied.
The Central Bank found that Ulster Bank applied incorrect haircuts on deposit levels or had not imposed haircuts at all.
