AIB has apologised for overcharging certain foreign exchange customers over an eight-year period but insisted senior management only learned of the overcharging in recent days. The amount involved is "approximately €14 million", write Colm Keena and Barry O'Halloran.
The Irish Financial Services Regulatory Authority (IFSRA) has said it wants to know how the bank could mistakenly overcharge customers for eight years without the mistake being addressed.
IFSRA consumer director Ms Mary O'Dea said it also wants to know how the overcharging could have been noticed in 2002 and not "immediately" brought to an end. She said the authority's "primary aim" would be that customers would get restitution.
The bank will not face prosecution or any other sanction for overcharging its customers. While the bank was in breach of the Consumer Credit Act, the law makes no provision for sanctioning any institution in breach of the section concerned.
Mr John Hickey, general manager, retail banking with AIB, last night said it was "absolutely not the case" that senior management within the bank knew of the problem but failed to report it to IFSRA. He said he only learned of the issue on Wednesday.
Senior management only became aware that a problem existed after representatives of IFSRA met the bank's compliance officers last week and raised the issue, Mr Hickey said.
IFSRA has said it first learned of a possible problem at the bank two weeks ago, as a result of an anonymous phone call, and then raised the issue with the bank at a meeting on Friday, April 30th. A spokeswoman for AIB said the overcharging was brought to an end in "mid-April", before the meeting with IFSRA and before senior management was made aware of the problem.
AIB charged a 1 per cent margin to customers who conducted non-cash foreign exchange transactions involving more than £500, when the margin notified to and authorised by the Office of the Director of Consumer Affairs (ODCA) was only half that. The amount of money wrongly charged to customers was €14 million and the period involved was 1996 to April 2004.
Mr Hickey said the problem was noticed by some people in the bank in 2002 but the people concerned were "not sufficiently aware" that the margin needed to be authorised.
He said the 1 per cent margin had been inputted into the bank's systems in 1995 and remained constant through the period. The incorrect notification to the ODCA in 1996 was "a pure mistake" and a "human error", he said. The bank's investigation would establish who knew what and when, he added.
It would also examine the bank's operational and control systems to see what changes could be made to prevent a recurrence of the error.
Asked if these systems had not been examined in the wake of the 2002 John Rusnak affair, Mr Hickey said the bank's systems were under constant review. The bank lost €691 million in a trading fraud operated by US trader Rusnak that went on for five years and was discovered in 2002.
Ms O'Dea said the compliance officers within AIB told IFSRA they were not aware of the problem when it was raised with them last week. She said the authority wanted to know what systems were in place for checking that correct charges were being levied by AIB and for ensuring that problems, when identified, were brought to the attention of the appropriate people.
She said IFSRA wanted to know how the issue came to light in 2002 and how it was dealt with. "We need to understand how an issue like this would not come on to the radar screen as a regulatory issue."
Mr Hickey said he did not believe all the customers who were improperly charged would be able to be identified. He said the bank would not benefit from the overcharging and that any difference between the amount of overcharging and the money that could be returned, would be given back to "the community".
Statements were issued by the bank and IFSRA after queries about the matter were submitted by RTÉ, which had in turn been told of the matter in an anonymous phone call.