Irregulation - Village Magazine

 —  October – November 2013

OU’VE heard the Anglo Tapes, you

know the state and the citizen have

injected € billion into the banks,

house prices across the country are

down % from their peak, there are nearly

, people out of work and you’re even

familiar with the minutiae of the Code of

Conduct on Mortgage Arrears.

In short you think you know all you need

to know and more about the ﬁnancial crisis

and the banks - then there is Section AK

in the Central Bank Act .

This piece of obscure legislation means

that the Financial Regulator is bound by

what the Central Bank describes as the Strict

Professional Secrecy Provisions not only

when supervising banks but also when pur-

suing wrongdoing in ﬁnancial institutions.

And the upshot of these secrecy provisions

is that members of the public report poten-

tially serious malpractice or even criminality

to the Regulator they will be told that they

cannot even be informed if the complaint

will be investigated never mind the out-

come unless. the investigation results in a

settlement or a sanction. This is because the

potential breaches of regulation and laws

are resolved by the Regulator and the oﬀend-

ing bank, in strict secrecy.

To be scrupulously accurate the Regulator

can hold the ﬁnal part of the Sanction Inquiry

in public but only in limited circumstances

because – where it is suspected the law has

been broken, a person’s reputation may be

damaged or the wrongdoing relates to mat-

ters of a conﬁdential nature – the hearing is

held behind closed doors.

But the Strict Professional Secrecy

Provisions at the heart of the apparatus,

regulating our banks have much more per-

vasive and insidious consequences – they

diminish regulatory legislation and codes

of conduct, undermine regulatory investi-

gators, and expose whistleblowers to their

employers, and, crucially, do so without the

alleged wrongdoing being recorded and

made publicly accessible.

Then there is the mechanism that the

Regulator uses to pursue wrongdoing

in banks: it’s called the Administrative

The dysfunctional regime at the Financial

Regulator means the outcome of complaints is

secret unless there is a sanction.

By Alan Jackman

NEWS CenTral banK

Irregulation



Sanction Procedure. This is a complicated,

forensic process but there are several pecu-

liar aspects to it besides the fact that it is

implemented under Strict Professional

Secrecy, that are worth considering.

If the Regulator has hard evidence that

a bank has broken the law, it informs the

bank that it’s aware of the bank’s activity.

The bank can choose voluntarily to enter

into a settlement at any time in the inquiry

process, eﬀectively negotiating a resolution.

The settlement might result in a sanction

and a ﬁne. But if the Regulator does ﬁne the

bank or a person in the bank then no crimi-

nal prosecution can be brought, certainly

not by the bank.

The situation described above is man-

ifest in the case of Quinn Insurance and

Seán Quinn, who took substantial sums

of money from Quinn Insurance and used

it to pay down margin calls on contracts

for diﬀerence on Anglo Irish Bank shares.

Quinn Insurance was ﬁned €. million

and Seán Quinn was ﬁned €,. As

a result Seán Quinn and Quinn Insurance

received immunity from criminal prosecu-

tion in this matter.

Of course they both beneﬁted from

receiving immunity from criminal prose-

cution, but actually so did the Regulator and

the Department of Finance, which may have

been embarrassed by details that may have

emerged in court in the event of a case pro-

ceeding, also beneﬁt from the decision taken

by the Regulator? In other words was there

a conﬂict of interest in the decision-mak-

ing process that led to ﬁnes being imposed

and immunity from prosecution granted

and was the decision to take this course of

action, in the Central Bank’s interest or in

the public interest?

A whistleblower in AIB had evidence

of potential mass over-charging of cus-

tomers, over a six-year period, and illegal

share dealing. He reported the matter to

the Regulator which, in accordance with

the Administrative Sanction Procedure,

informed the bank it was aware what it had

been up to and asked the bank to cease the

activity. Now AIB knew that it had got a

whistleblower in its ranks that had exposed

it and even its personnel – potentially to

criminal prosecution, reputational dam-

age and the loss of their livelihoods.

Eugene McErlean was Allied Irish Bank’s

group auditor. He reported AIB to the

Regulator in May , for over-charging

of its customers that was ﬁnally estimated

at € million and what he considered to

be illegal transactions involving buying and

selling shares by the bank’s stockbroking

ﬁrm, Goodbody.

At ﬁrst the Regulator appeared to view

the allegations seriously. Then in October

 it invited McErlean to a second meet-

ing, where the Regulator wanted him to

state he had withdrawn all the allegations.

McErlean refused. His job as auditor at the

bank was outsourced and he retired from the

bank after signing a conﬁdentiality agree-

ment. McErlean has described the fact that

his job was outsourced at the same time as

he reported the bank to the Regulator as a

coincidence.

But the Regulator didn’t stop the bank

from over-charging its customers – it

allowed the Bank to continue for another

two years. Then in  the Regulator

reported to the Joint Oireachtas Committee

on Economic Regulatory Aﬀairs and accord-

ing to McErlean misled it. The Regulator led

the politicians to believe it had only become

aware of the wrongdoing in , although

McErlean says the Regulator knew about

it as early as  and investigated it in

.

What is most peculiar though is not that

his job was outsourced after he reported the

bank to the authorities or that the Regulator

allowed the over-charging to continue or

failed to pursue the bank even though the

over-charging amounted to € million but

that the Regulator and McErlean could not

agree on even the year that he reported the

alleged wrongdoing to the authorities. But

perhaps that’s what you get when

complaints cannot be lodged on

a formal basis or then made pub-

licly accessible even in a redacted

form.

We all know the banks ruined

the country by ﬁrstly import-

ing money on a massive scale,

money not linked to economic

activity, artiﬁcially and grossly

inﬂating property prices and

then by lending huge amounts of

money to a small number of peo-

ple who could not repay the loans

when the bubble burst. Anglo

loaned € billion to just twenty

property developers. RTE’s docu-

mentary ‘Inside Irish Nationwide’

raised serious questions about

the building society that cost the

country € billion. What are the

chances of a whistleblower com-

ing forward about these lending

practices, having witnessed how

McErlean was treated? Proposed

whistleblower legislation won’t

save whistleblowers from the

spinelessness of the Regulator.

But there is another even