A former Fianna Fáil minister of State said that AIB offered the most competitive foreign exchange rates at the time it was overcharging its customers by up to €25 million.
Mr Ned O'Keeffe, a former minister of State for agriculture, said: "I understand the AIB charges, if operated properly, would have been lower than in other banks. I do not know what errors occurred in this area but I understand the charges were more competitive."
Mr O'Keeffe was speaking during the final stages of the Central Bank and Financial Services Authority of Ireland Bill, which broadens the powers of the Irish Financial Services Regulatory Authority (IFSRA).
During the debate, the Minister for Finance, Mr McCreevy, introduced a series of amendments to make it an offence for financial institutions to charge above the rates they have notified to the regulator. The changes also allow the regulator to fine banks up to €5 million if they overcharge their customers.
Mr McCreevy supported Mr O'Keeffe's comments about AIB's charges and said that he had "heard the same thing" and it was "ironic" that the bank was the most competitive at the time and would have had the higher rate sanctioned.
The Minister, who described banks as being like politicians in that "nobody likes them", said: "Deputy O'Keeffe may be correct in his assumption that at one point AIB was charging a lower rate than its competitors and that if it had applied for the 1 per cent sanction, it would have received it. The offence, if that is the correct phraseology, is that the bank was approved to charge a particular rate, yet it charged a different one. As Deputy O'Keeffe said, AIB was the most competitive player in the market at the rate it was charging."
Mr O'Keeffe called on the Minister to slow the pace of regulation. "The draconian measures being introduced are not the answer to the problem," he said. He expressed concern about "the extra bureaucracy we are creating and the major cost to the ordinary customer. Somebody will have to pay for these regulations."
Outlining the sanctions that a regulatory authority can impose on a financial institution, Mr McCreevy said the authority "may agree with a financial institution that the institution should pay an appropriate penalty, not necessarily requiring the institution to formally acknowledge its guilt".
Where an institution admits it has "committed a contravention, the authority can agree an appropriate penalty with that institution without going through a formal inquiry process." If either side does not wish to avail of these options, "there is provision for a formal inquiry by the authority leading to a formal determination".
The amendments were introduced following Cabinet approval in the wake of the AIB controversy but they will not be retrospective.
Fine Gael's finance spokesman, Mr Richard Bruton, said the introduction of enforcement "fills a massive gap that was cruelly exposed in the recent AIB case.
"Short of withdrawing the licence from AIB to continue banking, the regulatory authority had no powers to deal with a clear breach of consumer law."
But he expressed concern about a "one size fits all" enforcement procedure and said there had to be "proportionality" in the size of sanctions.
Labour's finance spokeswoman, Ms Joan Burton, said that "a sum of €25 million is nothing to our large financial institution. However, it would put a credit union in Monaghan or west Dublin out of business."
Mr Caoimghín Ó Caoláin, Sinn Féin's leader in the Dáil, said if the provisions had applied in the AIB case, "AIB could choose to enter an acknowledgement of its contravention and the authority might then decide not to initiate an inquiry. This is wrong."
The debate was adjourned.
