The full extent of the latest controversy to hit AIB has become clear, with the revelation that executives at the highest level of the company invested in the offshore vehicle set up in the British Virgin Islands. The bank itself has conceded that there was a breach of tax law in relation to Faldor. Even though the events now being revealed took place in the early 1990s, their exposure now has serious implications for the bank's reputation and poses a challenge to the Irish Financial Services Regulatory Authority (IFSRA).
Indeed it is no exaggeration to say that the way the affair is dealt with will now have significant implications not only for the future of AIB, but also for the wider financial sector.
AIB Group now needs to convince its customers that the clear deficiencies in its culture demonstrated by the recent scandals are a thing of the past. How to achieve this is now primarily an issue for the AIB chairman, Mr Dermot Gleeson, and the bank's board of directors. In many ways the latest revelations are the most difficult it has to handle. The overcharging problems have been presented by the bank as mistakes which its control systems failed to pick up. The investigations now under way will determine the full extent of these. However, the Faldor affair involves a conscious decision by people then at the top of AIB to establish a structure for their own advantage and one which involved a breach of tax law.
That this could take place - along with a range of other banking scandals ranging from NIB to Ansbacher to the DIRT evasion accounts - points to very serious problems at the heart of Irish banking for much of the past decade or more. It appears that the Central Bank was only concerned with prudential regulation - the interests of the consumer in this scheme of things were not so much in second place as completely ignored. Not rocking the boat appears to have been everyone's priority. And a culture of driving profits led to consumers losing out.
Now the question is whether things have really changed. AIB must demonstrate that it can regain the trust of its customers, staff and the wider public. The bank succeeded in emerging from the Rusnak affair, where a dealer in Baltimore lost $691 million, relatively unscathed. However the recent string of revelations involves clear misconduct by people who formerly led the bank and overcharging of its customers in a number of areas, most notably foreign exchange. Winning back consumer confidence will be no easy task.
IFSRA must also demonstrate that regulation has changed. The organisation says that consumers are now at the heart of its mission. However, we may never have found out about Faldor had it not been pushed into the spotlight in the wake of the overcharging revelations. In the weeks ahead many will whisper to the regulator that it should be careful not to upset the stability of the financial system. This was precisely the excuse used for many years to justify a range of malpractice and regulatory failure. It is vital that the new regulator does not repeat the mistakes of the past.