Big banks oppose vetting of financial managers

The three biggest Irish banks are opposing a tough new regime proposed by the financial regulator to test the integrity and competence…

The three biggest Irish banks are opposing a tough new regime proposed by the financial regulator to test the integrity and competence of directors and senior managers in the finance industry, writes Jamie Smyth.

AIB, Bank of Ireland and Ulster Bank have all lobbied the Irish Financial Services Regulatory Authority (Ifsra) to have key elements of its proposed new "fitness and probity" tests dropped before they are due to be implemented this year or next.

Several other big financial institutions and trade associations have also criticised the proposed scope of the tests, which they claim may lead to a flight of capital and personnel from the Irish financial services industry.

The regulator is proposing to introduce a single framework for testing directors and senior managers of finance firms to ensure they are competent and have the integrity to work in the sector. The tests would affect several thousand managers and directors.

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Until now there have been no standard "fitness and probity" tests within the industry.

The regulator began its review in March against the backdrop of overcharging scandals at Irish banks and the investigations of tribunals that uncovered tax evasion by directors at AIB.

The review is looking at the role of the appointing firm in vetting candidates, and the role of firms in fostering a culture of ethical behaviour and compliance.

In a recent consultation paper, the regulator proposed that directors and managers would have to provide tax-clearance certificates to their firms from the relevant tax authorities every year. It also proposed undertaking investigations of managers who revealed experience of bankruptcy or who own up to a criminal conviction.

The three biggest Irish banks, AIB, Bank of Ireland and Ulster Bank, are all seeking to have key elements of the new regime dropped.

In its first response to the proposed tests, AIB has warned that it would be very difficult to recruit directors due to the "virtually unlimited and uncontrolled access" to private information required by the regulator. The proposal would have "a chilling or discouraging effect on good tax-compliant and law-abiding candidates who would simply prefer to maintain their privacy", according to a letter from Dermot Gleeson, AIB chairman, which accompanies the bank's consultation response.

Bank of Ireland says it accepts in principle the proposal for a common test. However, it says it is concerned about the potential damage to the attractiveness of Ireland as a base for international financial services firms, and suggests amendments to the proposed test framework.

It highlights the lack of an appeals procedure for individuals deemed by the regulator to be unfit for office, and urges the regulator to accept approvals of individuals from other regulators based in OECD states rather than testing them itself.

Ulster Bank Group criticises the proposed process as "overly bureaucratic". It says there is no compelling evidence to justify the expansion of the existing regime. It also calls for a further consultation before the scheme is put in place.

The Irish Bankers' Federation, an lobby group for the banking industry, is also one of 24 respondents to the regulator's consultation.

It says the tests are "unduly burdensome to firms" and would damage the competitiveness of the industry and the attractiveness of the Irish Financial Services Centre.

The opposition to the proposed new framework will now be studied by the regulator before it decides on the right framework.