The Financial Regulator has “fundamentally changed” the way it regulates banks and is taking a more “hands-on” approach.
At the publication of its annual report for 2008, chairman Jim Farrell said the changes introduced since September last year were a response to the realisation existing measures to monitor the banks and cool the housing market were not effective.
“In retrospect, it is clear that the actions we took were insufficient and were not taken early enough. We took what we considered to be proportionate actions to mitigate the risks in the system and clearly this was not enough particularly in the light of the unanticipated speed and severity of the worldwide crisis that emerged,” the Regulator admitted.
Mr Farrell said the exceptional scale and rapidity of the economic decline had made “the task of regulation extremely difficult”.
In response to these events the Regulator said it had “fundamentally changed the way we regulate” from a principles based regulation that had “has proved inadequate here and abroad” to a more intensive and hands-on approach to the institutions benefiting from the State guarantee”.
“Our supervisory staff are now located on site and attend certain credit, treasury, audit, board and other meetings to monitor and assess the strength of corporate governance and management of risk. Banks now provide more detailed information on key risks to the Financial Regulator and chief executives are expected to reform how banks are managed.”
He said boards of financial institutions had to completely overhaul their approach and “probe, question and challenge management”.
“In particular non executive directors must play a more active role and we are monitoring the effectiveness of bank boards in this regard.”
On September 30th, 2008, Ireland became the first EU country to guarantee all bank deposits. Since then four issues have arisen that have led to formal investigations including the directors’ loans at Anglo Irish Bank; directors’ loans in other institutions; the circular transactions between Anglo Irish Bank and Irish Life & Permanent: and the and unwinding of contracts for difference in Anglo Irish Bank.
The Regulator said there was a general consensus that the credit union legislation needed to be modernised and said it was working with the Department of Finance on this project.
The former chief executive of the Regulator,
Patrick Neary, announced his decision to take early retirement earlier this year following severe criticism of the authority over its regulation of the banking sector in general and Anglo Irish Bank in particular. Mary O'Dea is the acting chief executive of the Regulator.
Fine Gael deputy leader Richard Bruton said the report made it clear that regulatory failures "were a failure to act not a failure of structures or analysis".
“This is the story of the dog that didn’t bark, or if it did bark refused to bite," the party's financial spokesman said. “The Central Bank and the Financial Regulator were paid to protect the taxpayer and the wider public from excessive risk-taking by systemically-important banks. They have failed miserably in this task.
“What is clear from even the Regulator’s own partial analysis is that the regulatory failures that occurred in Ireland were a failure to act, not a failure of structures or analysis," he said.
Ruairí Quinn, Labour spokesman on education, said the report is "graphic testament" to the failure of regulatory regime for the banking and financial sector.
"Unfortunately the report does not adequately acknowledge the extent of the failure of the Regulator to detect and prevent the sort of irresponsible banking practices that have exposed the Irish taxpayers to a potential liability of more than €440bn," Mr Quinn said.
"Assurances from the Chairman of the Regulatory Authority that it has taken a more 'intensive and intrusive' approach to financial institutions since September 2008 will offer little comfort to taxpayers as the damage was done in the years running up to this date.
"If there was ever a case of bolting the regulatory stable door after the financial horse had bolted, then this is surely it," the Labour TD said.
The Professional Insurance Brokers Association (PIAB) said the attempt by the Financial Regulator to “evade responsibility for its failures in recent years is disingenuous in the extreme”.
PIAB chief executive Diarmuid Kelly said the “right lessons must be learned from the appalling and very dramatic failures of the past number of years”.
