Directors and senior executives of Irish financial institutions will be held responsible for ensuring their organisations uphold the law, the Irish Financial Services Regulatory Authority (IFSRA) has indicated. Siobhán Creaton and Barry O'Halloran report
IFSRA chief executive Mr Liam O'Reilly, whose organisation is responsible for policing financial institutions, said yesterday that AIB had "disobeyed" the law.
"We must assign responsibility where it lies," he said in the course of an address to the Oireachtas Joint Committee on Finance and the Public Service.
His comments came as it emerged that IFSRA's investigation into AIB's overcharging on foreign exchange transactions had been extended to examine why the bank charged some 570 mortgage customers for payment protection cover without their approval since 2001.
The bank confirmed that it had automatically applied payment protection cover to customers who topped up their mortgages during that period.
AIB said it would be contacting these customers to inform them they are entitled to a refund if they wish to cancel the policy.
A spokeswoman for the bank said that, when taken in isolation from the foreign currency overcharging, which IFSRA has estimated to have amounted to €20 million, the automatic assignment of mortgage protection was "a small issue".
She said the policy would have incurred a monthly payment of around €8 where a customer borrowed an extra €25,000 from AIB over 15 years.
Other key mortgage lenders in the Irish market yesterday said they had not overcharged customers on payment protection plans, and none anticipated a problem with this issue.
AIB has appointed the former comptroller and auditor general, Mr Lauri McDonnell, to lead an independent investigation into both matters. This is expected to conclude by mid-June.
Mr O'Reilly said IFSRA would review these findings, and formulate its conclusions on whether the bank's response was appropriate.
"This process will, of course, also involve determining how the matters could have arisen and persisted over an extended period of time, and will involve identifying the measures necessary to deal with the possibility of such matters arising again."
Mr O'Reilly added that IFSRA would also review its regulatory process in view of the findings.
New legislation, which has been amended in the light of AIB's shortcomings, will empower IFSRA to insist that all financial institutions must sign-off on reports to be submitted to the regulator stating they are fully compliant with various legislation and codes of conduct.
IFSRA can decide who should sign these documents, with Mr O'Reilly suggesting that he believes this task should fall to the most senior executives and directors.
He told the committee that IFSRA's approach to regulation could only be achieved if the boards and top management of financial institutions committed themselves to a culture of integrity, competence and best practice.
"In turn, we would expect them to ensure that this culture flows through all levels of their organisations. Our aim is to have a regulatory environment that engenders an ethical and competent industry with appropriate risk systems in place."
Yesterday, the committee received a letter from AIB chief executive Mr Michael Buckley, indicating that the bank would be happy to appear before it. He suggested that this should take place some time after mid-July when the investigation into overcharging had been completed.
The letter followed a request from the committee to the bank. Some committee members felt yesterday that the bank should be brought in anyway before the current investigation is complete.
However, the committee agreed to seek legal advice on whether it was appropriate for the bank to appear before it before the investigation was complete.