IFSRA – Swimming without a swimsuit

The performance of the Irish Financial Regulator is allegedly monitored by two panels; industry and consumer.

Judging from the two articles below it is difficult to believe they are talking about the same organisation. The third piece is a letter I wrote to the Irish Times (unpublished) in response to the inconsistency of the panels.

Criticism of regulator is misconceived

While both industry and the Financial Regulator want strong players in the IFSC, it can never be a zero-failure environment, writes James Deeny

Sept 4th 2007

The recent coverage of the problems associated with the Irish subsidiary of Sachsen LB and the associated implied criticism of the Irish regulatory regime have failed to cover some crucial aspects of international regulation in Ireland.
Fundamental lessons were learned from the Bank of Credit and Commerce International (BCCI) fiasco nearly 20 years ago when that bank structured itself in such a way that there was no obvious primary regulator.
International financial regulation now clearly defines where the buck stops through a universal principle of home country consolidated regulation of the worldwide operations of a banking group. In the case of Sachsen this consolidated supervision occurs within the German regulatory system.
To say that the Irish Financial Regulator was seeking to distance itself from the problem is totally unfounded. It was for the Financial Regulator here to supervise the compliance with national and European banking regulation of the Irish subsidiary Sachsen LB Europe solely and that is what it did.
There are obvious lessons to be learned from the Sachsen situation, both in Ireland and, more particularly, in Germany. The German regulatory system is fragmented and does not benefit from a single regulatory regime similar to that established in Ireland in 2003. One can legitimately ask whether it was prudent to allow a regional savings bank to engage in capital market operations on the scale involved and whether such a bank had the necessary experience and controls in place to engage in such activity. That was for the German regulator to decide.
Now, we can expect the bar will be raised both in Germany and in Ireland regarding the scrutiny of bank licence applications and their associated business cases, especially with smaller banks involved in capital market transactions.
However, the system of home country regulation that was put in place has worked and the problems that arose have been addressed and resolved in Germany.
We also need to bury another dangerous media misconception that Ireland operates a “light touch” regulatory regime. This is a million miles from the reality. The fact is that the Irish Financial Regulator operates to world-class regulatory standards where increasingly its day-to-day regulatory work is driven by EU and international regulation.
I would seriously doubt whether any of the over 10,000 firms and funds regulated by the Irish Financial Regulator would categorise their regulation as “light touch”.
The Financial Services Consultative Industry Panel continually talks to the Financial Regulator, seeking to achieve a top quartile standard in financial regulation, balanced with international competitiveness. Light regulation is on neither of our agendas.
The use by some media commentators of easy catchphrases to help describe the complex matters that have arisen equally have no place in a serious debate on these issues. They only add to the potential misunderstanding that can arise and, indeed, can also lead to unnecessary reputational damage internationally.
Since its formation in 2003 the Financial Regulator has undertaken an immense workload in completely updating its authorisation, fitness and probity, sanctions and inspection protocols. It has significantly raised the bar for all domestic and international financial service providers. The reality is that it is doing a good job.
In the international wholesale financial services market, Ireland ranks in the top four in the EU. Ireland punches well above its weight in the sector, with a highly developed skill set across a range of financial services.
In the main, the players involved are strong international financial names operating under a robust Irish regulatory regime. The sector is a huge job creator and wealth generator for Ireland.
The IFSC is a financial crossroads and given the scale of the operations involved, we can expect at the margin that similar situations to Sachsen will arise where weaker players run into difficulty.
We need a mature understanding of this. As the saying goes when the tide goes out you find out who is in the water without a swimsuit and this unfortunately has been the case with Sachsen.
Fundamentally there is no difference between industry and the Financial Regulator in wanting strong players in the IFSC; however, it can never be a zero-failure environment.
James Deeny is chairman of the Financial Services Consultative Industry Panel which, under the Central Bank and Financial Services Act, provides independent input to the Financial Regulator on new regulation.
© 2007 The Irish Times

Regulator refuses to detail overcharging by banks

Paul Cullen, Consumer Affairs Correspondent

une 18th 2007

The State’s financial watchdog has refused to provide details of overcharging by individual banks even though its own consumer panel requested the information.
The Irish Financial Services Regulatory Authority has also refused a request to oblige banks to show gross interest with Dirt tax separately deducted on statements.
While the regulator’s consumer panel says it is “virtually incredible” that this issue is not addressed immediately, the regulator says the matter is closed until its Consumer Protection Code is reviewed next year.
The Financial Regulator also declined requests to report more frequently on the sanctions it imposes on financial services companies and to draw up a code of practice to deal with shortfalls on endowment mortgages.
In a review of the regulator’s performance, the panel accuses it of slowness and excessive caution. “It communicates with such caution that it gives the impression that if it can find a reason not to act, this will be the preferred outcome. It appears to seek complexity and obstacles rather than to see consumer-oriented solutions to current and emerging problems.”
As well as criticising the regulator’s “unsatisfactory” performance in a number of areas, the panel says consumers need to be more clearly informed about where complaints should be made. It says consumers, and the panel itself, receive no information about the enforcement of regulations.
However, the chairman of the panel, accountant Brendan Burgess, said the performance of the regulator in dealing with some issues had improved since the review was completed earlier this year. “We hope they will continue to speed up.”
The regulator had also started responding faster and more appropriately to questions from the panel. “And even if our suggestions are generally rejected, at least they are rejected more promptly,” he added.
Overall, the regulator had got the balance right between protecting consumers and keeping the level of regulation appropriate, he said. The consumer was “far better off” than before the authority was set up.
The panel also expresses concern about the sums spent by the regulator on outside legal advice.
© 2007 The Irish Times

4th Sep 2007

Madam,

The chairman of the Financial Services Consultative Industry Panel, James Deeny, blames the German Financial Regulator for the recent problems associated with the Irish subsidiary of Sachsen LB (Opinion, 4th Sep.).

In addition, he blames the media for misunderstanding the complex matters dealt with by the Irish Financial Regulator, a situation, he claims, that could lead to unnecessary reputational damage internationally.

According to Mr. Deeny the Financial Regulator is ‘doing a good job’.

Mr. Deeny’s sister panel, the Financial Services Consultative Consumer Panel, has an entirely different view of the regulator’s performance. In an Irish Times report (June, 18th) the panel made the following criticisms of the regulator.

Refused to provide details of overcharging by individual banks.

Refused a request to oblige banks to show gross interest with Dirt tax separately deducted on statements, the panel described this refusal as ‘virtually incredible’.

Declined requests to report more frequently on the sanctions it imposes on financial services companies.

Slowness and excessive caution giving the impression that if it can find a reason not to act, this will be the preferred outcome.

The panel chairman, Mr. Brendan Burgess, in a desperate attempt to be positive made the pathetic comment. “Even if our suggestions are generally rejected, at least they are rejected more promptly.”

Even allowing for the separate functions of these panels, it is still difficult to believe they are talking about the same organisation.

Perhaps, to paraphrase Mr. Deeny, when the tide goes out we will discover who’s been swimming without a swimsuit.

Yours etc.

Anthony Sheridan