Central Bank of Ireland - Criticism

Criticism

From the mid-1970s up to the early 1990s, it was aware of, but took no action to stop, an organised large scale tax evasion scheme organised by Ansbacher Bank for the benefit of wealthy and powerful Irish people. Included in those who were breaking the law were a director of the Central Bank and the architect given the commission to design their headquarters (in contravention of planning permission).

In 2000 the Dail Public Accounts Committee "DIRT" enquiry, into the facilitation of wide spread tax evasion by the banking industry, was of the view that the Central Bank had an inappropriate and outmoded approach to supervision in the context of the growing sophistication of banking and the changing role of banks. It also found there was an insufficient concern with ethics and supervision other than from the standpoint of a traditional and narrow concern with prudential supervision in the Central Bank. The Chairman of the inquiry was "shocked and horrified" at the "careless and reckless" manner in which the Governor had quoted false statistics to the Public Accounts subcommittee.

The Central Bank was warned by the German regulator, BaFin, as early as 2004 that Sachsen LB's troubled Irish subsidiaries were involved in highly risky and under-scrutinised transactions worth as much as €30bn or 20 times the parent bank's capitalisation. Despite the warning, in 2007 the CBOI approved another Sachsen investment vehicle and two months later the stable of off-balance sheet companies needed a €17.3bn bail-out from the German association of savings banks to keep Sachsen afloat.

The Irish Brokers Association said there was "intense frustration and annoyance" about excessive red tape and the CBOI refusing to listen to them in 2005.

The same year the Central Bank was criticised for publishing a report, which it was said, read a bit like a promotional brochure for the money lending industry. It included a section devoted to arguing why moneylenders should be allowed to charge as much as they do. (188%-plus collection fees of up to 11%.)

The Australian Authorities warned the Central Bank of the activities of person connected with the largest bankruptcy in that country's history. The CBOI did nothing, he went on to commit a US$500 million fraud and pleaded guilty in the US despite the crime being committed in Ireland.

Their consumer panel stated that the Central Bank was slow to respond to consumer issues and '"appears to seek complexity and obstacles rather than to seek consumer-oriented solutions to current and emerging problems"'. And it warned that this approach can undermine consumer confidence in the "efficacy of the regulatory process. "

The same month in 2006, a government-appointed panel that consists of banking and insurance representatives revealed widespread dissatisfaction with the Central Bank’s skills base.

Their industry panel, which provides feedback on its charges and policies said the levy on financial institutions for industry funding is perceived by industry as cumbersome and bureaucratic

They did not give their consumer panel a copy of the report of the working group set up following the collapse of a stockbrokers, where some investors were waiting over 7 years to have their claims processed. When the panel managed to get sight of it, they said it was "extremely deficient"

In July 2007, the Comptroller and Auditor General called for an independent review of the inspection process for financial institutions carried out by the Central Bank. The Comptroller urged the introduction of clearly defined risk categories for individual areas of financial services, so that the appropriate level of supervision required for each institution can be implemented in line with the risk involved.

Transcripts of phone calls by their senior staff suggest they gave tacit approval to the illicit movement of deposits involving Irish Life and Permanent plc. "Okay, that's grand, right I think that's everything". The CBOI refused to say whether staff might face disciplinary procedures or sanctions if the transcripts were validated and investigated internally.

The CBOI knew that Allied Irish Banks were overcharging consumers in FX fees but failed to act for a number of years. They gave a parliamentary inquiry the "false impression" that they were unaware of it. The whistleblower who gave them the information was requested to come to a meeting with the CBOI but was only invited to withdraw the allegations of wrongdoing and at the same time found himself removed from his position at Allied Irish Banks without any reason given. After his case was highlighted in the media, the CBOI officially apologised on how the authorities treated him, eight years after alerting them of overcharging.

The same whistleblower also sent a report entitled ‘Special Investigation Goodbody Stockbrokers – Trading in AIB Shares’ to the CBOI, in which questions were raised about the legality of a device used to trade in AIB shares through offshore locations in blacklisted tax havens Nevis and Vanuatu. No action was taken.

In 2008 as the Irish economy collapsed, it spent €115,000 on one staff party.

In early 2009, the Financial Services Consultative Consumer Panel, tasked with monitoring the performance of the Central Bank, said that most consumers have lost “significant amounts of money” due to the inadequacies of the financial regulatory structure. It also criticised the “deficient” response of the CBOI to threats to consumers, including the Irish property bubble. In response they said “It is clear that the actions we took were insufficient and were not taken early enough,”

Then leader of the opposition and future Taoiseach Enda Kenny. and finance spokesman Richard Bruton called for the board and senior management of the Central Bank to be sacked. Independent Senator, Shane Ross said that the CBOI was an institution that had lost the faith of the international markets “They think it is actually genetically flawed. That is the problem we’re going to have to attack next.”

The incumbent before that, had companies he is a director of, fined a total of €3.35 million by his previous employers the Central Bank, for risk control and reporting failures.

Ernst & Young was hired, to advise the Central Bank of Ireland on the €440 billion bank guarantee scheme in January 2009, despite the fact that Ernst & Young was being investigated arising from its audits of Anglo Irish Bank and had also refused to appear before a parliamentary committee following the collapse of the same bank after receiving "legal advice". Their then head of financial regulation told the same committee that "a lay person would expect that issues of this nature and this magnitude would have been picked up” by the external auditors. At the same time the lowest tender was not chosen for the fit out of new offices in Spencer Dock in Dublin's docklands.

Following the failure of existing regulatory structures to prevent excessive lending to the property sector, consultants Mazars, which were brought in to review operations said that "regulatory expertise was lacking in some areas." Responding to the highlighted weakness, Brian Lenihan, the Minister for Finance, said "substantial additional staff with the skills, experience and market-based expertise will be appointed. Those recruited will also have the expertise to regulate the international financial services sector." He also announced that all consumer functions will be '"re-assigned"' to other agencies.

In July 2009, the CBOI blocked insurers and banks from making any critical statements containing "any references" to them by means either of "public press statements" or un-approved public references, whether "written or oral."

Two reports of an investigation into the "wholly inappropriate sale of perpectual bonds" by Davy Stockbrokers to credit unions failed to involve any of the credit unions affected, leaving them "in the dark and powerless to add any value to the findings of this investigation”. The CBOI then declined to give them access to the reports. The Chairman of one the Credit Union's who suffered large losses told his members ‘‘The failure to publish the reports is to place the complaints process in a shroud of secrecy. Such a failure of openness, transparency and fairness can only serve to undermine confidence in the complaints process, forcing those with grievances into the courts. Such a course of action is not in the interest of any of the stakeholders.”

The next month, the head of the German Financial Regulator told the Bundestag Finance Committee that the failure of the "terrible" Depfa Bank, which was completely supervised by its Irish equivalent, lead to the collapse of its German parent which forced Berlin to bail it out at a cost of €102 billion. The committee was told that the alternative was a run on German banks and the eventual collapse of the European finance system and “You would have woken up on Monday morning in the film Apocalypse Now” The bank had just 319 employees but was allowed to guarantee loans valued at 14 times Ireland's Gross Domestic Product. A former Governor of the Central Bank of Ireland was a director of Depfa. Regulatory failure was acknowledged and this is a source of continuing friction with the German authorities.

The CBOI admitted that it had issued private warnings to over 30% of credit unions about their arrears levels, but refused to provide full updates on what percentage of credit union loans are in arrears or how quickly they are increasing. This raised questions about their commitment to openness.

Transparency International have questioned whether the Central Bank should continue to have an exemption from Freedom of Information legislation. Compliance experts have said "The most offensive confidentiality provision in Ireland is the one which protects the Central Bank" Both the Financial Services Ombudsman and Information Commissioner, are among others, who called for a lifting of the confidentiality applied by the Central Bank to much of its work. Other EU regulators have a policy of transparency.

The director general of the Free Legal Advice Centres in October 2009 said, the code of conduct on mortgage arrears produced by the Central Bank was "deeply disappointing", and did not offer enough protection for consumers.

The Irish Times, the country's "newspaper of record" said the organisation "has a death wish and its regulatory edict verges on the Pythonesque, eating into what is left of its credibility."

In a speech, the Governor of the Central Bank implied that "ignorance and inattention" were to blame for regulatory failure.

The Consumer Consultative Panel, in December 2009 said that they were unable to function for almost a year because officials ignored requests for meetings and "we believe it is unacceptable that the board of the financial regulation section has failed to take responsibility for their stewardship of the organisation during the last six years.They did not understand many of the sectors and financial products it regulates. These failings undermines their ability to enhance or enforce corporate governance in the wider financial services sector.It also warned "that the reforms announced to date were not sufficient to avert more crisis' in the future."

Following a February 2010 review by the Comptroller and Auditor General, the organisation admitted that it paid for 52 spouses of staff to go on foreign trips over a two-year period.

The next month opposition politicians described an advertisement seeking to appoint a consultant to oversee its art collection as insensitive and inappropriate at the dept of the credit crunch depression.

The Central Bank should give an annual statement to the Dáil on bank supervision to make regulation '‘more accountable’’, the Comptroller and Auditor General said in March 2010 after highlighting shortcomings in financial regulation leading up to the financial crisis .

At the same time the influential German newspaper Siddeutsche Zeitung described as "remarkable" the CBOI's handling of a whistleblower's revelations that the Irish subsidiary of Unicredit Bank had 40 times the permitted level of deviation of minimum liquidity requirements. They also did not inform the parent bank and the relevant regulatory authority on the continent.

High risk and sloppy lending practices at the Irish Nationwide Building Society were reported to the Central Bank by external accountants over a long period but did not change its behaviour. The former head of compliance, became a whistle blower by reporting "dodgy practices" but again the authorities did nothing. It required a €5.4 billion Government bailout, leaving it effectively in State ownership. A letter which they received concerning the legality of the illicit loans by the Building Society to Sean FitzPatrick had "gone missing". Management at Irish Nationwide used to arrange meetings with the CBOI for late on a Friday afternoon, knowing that the regulator's staff would not want for the encounter to last for more than an hour because it would nibble into their weekend.

The chief executive of Financial Regulation was asked at a parliamentary committee "In regard to baseline qualifications, if your staff is regulating the financial sector, should it not be the case where they should have the bare minimum required in the market as well, a qualified financial adviser status, or they've gone through certain industry exams. It's obviously important to have." But the chief executive disagreed: "I don't agree with that. But I think I'm conflicted because I've never taken a professional exam in my life."

Reports on the financial crisis did not ask the opinion of their consumer consultative panel, who in a statement said it was "very disappointed that, in particular, the report by the Governor did not refer to the work of the panel in highlighting many of the failings of the regulation in the past number of years." Fresh areas of concern included the lack of minute-taking at senior levels in the Financial Regulation section and among its sub-board. "If this is the situation that prevails, then this has to be a source of concern regarding the standard of governance."

One of the reports noted that the Central Bank had found substantial departures from credit policy during inspections of banks, but failed adequately to follow up on its concerns. Secondly intrusive demands from regulatory staff could be and were set aside after direct representations were made to senior regulators.

Two months later, it emerged that their regulatory section authorised the Quinn Group (which subsequently went into administration) to borrow €169 million from Anglo Irish Bank in order to buy Anglo Irish shares (which subsequently had to be nationalised at a cost of €5,500 for every man, woman and child in the State). Its actions were described as "like the Vatican running an abortion clinic."

On her September 2010 state tour to Russia, the President of Ireland Mary McAleese, highlighting the importance of competence, criticised the Central Bank for its role in the run-up to the financial crisis which resulted in tens of thousands of people in mortgage arrears.

The same month the Central Bank described as "heroic" the response in the run-up to the blanket guarantee of Ireland's toxic banks. Frank Daly, the chairman of Nama and former Revenue Commissioner, said he believed there was only a "quite late engagement," by the Department of Finance with the financial crisis. "The Department relied on the Financial Regulator and the Central Bank and was let down by them," he added. Two months later, Ireland lost its economic sovereignty when it was bailed out by the EU/IMF/ECB troika.

Almost simultaneously external reviewers highlighted the "unacceptable” pace of investigation into how the financial system in Ireland came close to collapse “leaves a lot to be desired”. This was in contrast to the United States and Iceland, which have moved faster to examine what went wrong. “Furthermore, there has been very little outcome from ongoing investigations into dealings at some of our major institutions" by the Central Bank.”

Criminal prosecutions by An Garda Siochana against managers in banks who committed offences are being undermined as CBOI staff were aware of the alleged offences, took no action to stop them and thus provided an arguable defence to those who committed wrongdoing, as they could reasonably claim they were acting with the approval of regulatory authorities at all times. One line of inquiry being investigated by detectives is that they did not inform the Department of Finance of all facts they knew about the banking industry. Two arrests were made following a complaint made by two officials of the Central Bank.

The European Commission in a November 2010 review of the financial crisis said “Some national supervisory authorities failed dramatically. We know that in Ireland there was almost no supervision of the large banks.” Two months later, EU Commission president Jose Manuel Barroso in an angry exchange in the European Parliament, with a vehemence that shocked his audience, said that "the problems of Ireland were created by the irresponsible financial behaviour of some Irish institutions, and by the lack of supervision in the Irish market."

Five years elapsed before they forced Davy Stockbrokers to inform investors, who lost tens of millions of Euro, that ‘‘the instrument sold was not compliant with the Trustees (Authorised Investments) Order at the time of its sale as it was not listed on a recognised Stock Exchange’’ and it "dealt as principal in both the purchase and sale and was in breach of the rules of the Irish Stock Exchange by not disclosing this fact on its contract note’’. The effected parties had settled their claim against the stockbroker, before receiving the notification, and it was suggested they could have received much more compensation if they had ensured that their adverse findings about the case was communicated. The full report was not published and no regulatory action was taken.

Within days, after the arrival in Ireland of the International Monetary Fund, they admitted that the stress tests on banks, that the CBOI conducted 4 months earlier "failed to convince financial markets" and the level of capital that the banks needed which they recently described as at "shock and awe" safety levels would be increased by 50 per cent. Two months later, a European Commission document revealed, that a second stress test on Irish Banks, would be "peer reviewed" by the Banca d'Italia and the French Commission Bancaire "to strenghten the external credibility of the process". This would be in addition to the consultants hired to help the Central Bank, at a cost of nearly €40 million, Boston Consulting Group, Blackrock Solutions, and Barclays Capital. However Boston Consulting, expressed reservations about the process-saying it would have preferred to carry out more file reviews of bank assets, blaming "time and resource constraints imposed by the Central Bank." A secret internal investigation was held following repeated claims by a whistleblower that the stress test data was "doctored" and "dressed up" to ensure that Bank of Ireland, Allied Irish Banks and Irish Life & Permanent passed, but the investigation found there was no reason for concern. Independent TD Stephen Donnelly said "Perhaps the Oireachtas Financial Committee could look into these allegations on behalf of the Dail. It is not appropriate for the Central Bank to be the only body investigating serious allegations against it by one of its own employees."

The €50 billion of emergency funding given to Irish banks by the Central Bank of Ireland could pose a threat to the very solvency of the Central Bank itself, a report by Citi concluded in January 2011.

In March 2011, the Free Legal Advice Centres criticised the CBOI for failing to regulate hire-purchase agreements saying "that some of the worst credit practices take place on garage forecourts when people are sold hire purchase for a car."

Comparisons with the Bank of Finland—the equivalent of the Central Bank of Ireland—which has a much more complex banking system to safeguard, show it halved its staff since the introduction of the Euro to 650. The CBOI will have more than doubled its headcount to 1400 by 2012, many of whom are on an average salary of €80,000 a year and work 32.5 hours per week or 6.5 hours a day. The level of its business travel expenses, featured in the best-selling book "Wasters", increased by 46% in one year. At one time, the Governor was said to be one of the highest paid Central Bankers in the world. An "endemic culture of rewarding failure" has meant that not one person in the Central Bank has been sacked for their role in the worst financial and economic crisis in Ireland's history, a leading economist said in August 2011.

Investors blasted the CBOI in October 2011 after losing tens of million of Euro in what a High Court Judge described as "a sort of an Irish ponzi scheme" saying regulators should have spotted the problems earlier. An inquiry will be carried out, on how the Central Bank handled the affair.

In March 2012, it fined a stockbrokers for failing to report trades to allow them prevent market abuse and failed to establish "adequate policies and procedures". A Director and shareholder of that firm who was present when most of the regulatory breaches took place was then appointed Head of Stockbroking Supervision at the Central Bank.

The decision to continue printing euro notes in Dublin when those notes could be printed much more cheaply on existing presses elsewhere was described a colossal waste of money in April 2012.Its senior officials also earn more than their counterparts in the United States.