Some 13 years after the banking sector imploded at a cost of €64 billion-plus to taxpayers, the Government is bringing forward legislation designed to prevent “misbehaviour or mismanagement” by individuals in senior positions within the financial services industry.
The new laws will beef up the regulator’s ability to hold individuals to account and will apply to those in senior positions in banks, insurers and certain investment firms but not to credit unions. The Central Bank will also be able to impose heftier sanctions and fines under the new regulations.
Minister for Finance Paschal Donohoe said last week that the new senior executive accountability regime would “drive a culture of positive behaviour among those who work in financial institutions and is part of the ongoing work to restore trust in these institutions”.
It’s remarkable that there remains a need to restore trust and drive culture change almost a decade-and-a-half after the blowout of the financial services sector. The scars of that implosion are still being felt – reduced competition for consumers, mortgage rates that are almost double the EU average, and thousands of people in arrears with Celtic Tiger era home loans.
A key element of the legislation is that the Central Bank will be able to pursue individuals for potential misconduct, without having to first prove a contravention of the rules by a regulated firm. Breaking this link is an important reform and should focus the minds of senior individuals who might be tempted to break the rules or who might turn a blind eye to misconduct.
The devil will be in the detail, of course, and the Government has to balance new powers for the regulator with the constitutional rights of individuals. The UK backed off a proposal that the burden of proof would lie with executives to show that they had done nothing wrong. The Minister conceded that it could be at least another 18 months before the new regime comes into force. That would make it almost five years since the Central Bank first asked for the powers, and 15 years post crash.
Holding bankers to account for their actions both before and after the crash involved painstaking and costly legal and criminal processes, while the Central Bank’s investigation into the collapse of Irish Nationwide continues to rumble on. Many wonder why no individual has been held to account in the tracker mortgage scandal, which resulted in 40,000 customers being denied trackers, some families losing their homes, a redress and compensation bill of €683 million for the banks, and large fines being handed down by the Central Bank.
This legislation should help address those gaping holes in the regulatory framework but the Government needs to get on with it. The regime must be brought into force as soon as possible.