Summary: The following are the key findings in the case of customer charging and deal allocation and associated issues as outlined in a summary of yesterday's report from the Irish Financial Services Regulatory Authority (IFSRA). The summary also includes the response which IFSRA has required from AIB.
1. Certain staff and management within certain areas of AIB appear to have been aware of the fact that AIB was charging over the amount notified to the regulator in certain foreign exchange transactions.
2. Between 1998 and 2004, at least seven opportunities arose for certain staff and management within certain areas of AIB to identify and/or disclose the discrepancies to the relevant regulators. This was not done.
3. Between January and April 2004, AIB took a number of deliberate measures to reduce the foreign exchange charge being applied. The charge was reduced in April 2004 without informing the regulator.
4. There was inadequate documentary evidence of decisions made in relation to changes in charges, including the original notification. They also show that the procedures to raise matters "up the line" in AIB were inadequate and contributed to this matter persisting for so long. Controls within AIB were also weak in relation to monitoring customer charges.
The report confirms that the total amount of excess charges by AIB came to €34.2 million, including interest. About €13.5 million, or 52 per cent of the estimated total €25.6 million, has already been repaid to date in relation to foreign exchange transactions. Of the remaining refunds for other charges, totalling €8.6 million, €2.2 million has been repaid.
Key findings of the report in the case of the deal allocation and associated issues:
1. Between 1989 and 1996, funds of then-senior executives of AIB and/or related parties were managed through a British Virgin Islands investment company, Faldor Ltd. Faldor was managed by Allied Irish Investment Managers Limited (now AIBIM).
2. Faldor benefited from inappropriate favourable deal allocations, by way of artificial deals, amounting to approximately €48,000 out of AIBIM's own funds. IFSRA has no evidence to indicate that the beneficiaries of Faldor influenced or were aware of these allocations.
3. AIBIM's own trading funds were also used to boost, through the unacceptable practice of artificial deals, the performance of certain clients' portfolios, other than those of Faldor.
4. Further inappropriate deal allocation practices relating to eight transactions in the period 1991 to 1993 were identified which adversely affected the performance of two specialist unit trusts, amounting to a total of €174,000, to the advantage of other clients. These were unrelated to Faldor.
5. While the internal audit function of AIB did identify some inappropriate dealing practices in 1991 and 1993, there is no evidence that the Faldor account was identified in these audits.
6. No disciplinary action was taken against individuals involved in these practices at the time and compensation was not paid to the unit trusts affected.
AIB actions required by IFSRA
The financial services regulator has required AIB to ensure that all of the serious issues identified in this report are addressed comprehensively, speedily and with the utmost priority. As a result of these investigations and this report, AIB is undertaking a number of actions, which will be monitored by the financial services regulator. These include:
1. Making all practical efforts to refund the full amount identified in the charging issues investigation, totalling €34.2 million, including interest. Where customers cannot be identified and refunded, AIB is not to benefit financially in any way.
2. Considering and applying appropriate disciplinary actions against individuals found responsible in both of the issues investigated. AIB will report the outcome to the financial services regulator.
3. Undertaking a fundamental review of product pricing policy and systems.
4. Accelerating and completing its programme of strengthening its compliance function, and developing further and refining its risk management and internal audit functions.
5. Introducing and maintaining a centralised register of all charges levied on products.
6. Conducting regular reviews of risk management, controls and governance.
