THE FINANCIAL Regulator is preparing to carry out a review of policies on conflicts of interest across the financial institutions for bank employees who borrow from their own institutions or other lenders and staff who are engaged in business outside the banks.
The Irish Timeshas learned that the regulator plans to look at bank guidelines on staff who have directorships of outside companies or shadow directorships where relatives or associates hold the positions on their behalf.
The review, which will be led by the banking supervision department at the regulator, will also assess the banks’ internal policies on employees who have impaired loans with the financial institutions or with other lenders.
It is understood that the regulator’s concerns are likely to focus on whether the financial institutions have sufficiently strong controls to monitor conflicts of interest governing bank staff.
The regulator’s review is expected to look at the banks’ lending policies for all employees and not just for senior management involved in large-scale borrowing outside their bank.
The regulator will seek to establish that banks have sufficient procedures in place to ensure that conflicts of interest do not arise for staff engaged in business dealings outside their employment at the bank involving loans from that bank or other institutions.
The review, which is in the planning stages, will cover bank policies on employees at all levels of the financial institutions and will be an industry-wide assessment.
The regulator’s assessment of banking policies follows the public disclosure in recent months that senior managers at Allied Irish Banks who hold substantial property businesses outside their banking roles have loans from other financial institutions.
The Irish Times reported last November that Tommy Hopkins, a general manager with AIB commercial banking at AIB Bankcentre in Dublin, and John Hughes, head of business banking at AIB’s Eyre Square branch in Galway, were involved in a number of property and other companies outside their banking work.
The two men are in business with people who have separate business relationships with AIB.
Mr Hughes is a director and shareholder of a number of firms that have relationships with banks other than AIB. He has said his external business activities were in compliance with AIB’s code of ethics governing such matters and there was no conflict of interest involved. The two men were the subject of an internal investigation at the bank into their involvement in outside property businesses.
The regulator has already assessed the disclosure of lending to directors and connected parties across the financial institutions.
The investigation followed the concealment of loans of up to €122 million at Anglo Irish Bank to former chairman Sean FitzPatrick over an eight-year period with the use of short-term borrowings from Irish Nationwide Building Society.
The loans are one of a number of matters being investigated by the Garda and the Director of Corporate Enforcement.
The report on bank lending to directors and connected parties at six domestic institutions, excluding State-owned Anglo Irish Bank, which is the subject of a separate investigation, was published by the regulator in March 2009.
The regulator found no evidence that the six lenders examined removed or reduced loans to directors at their financial year-ends to avoid disclosure, but they were directed to improve their systems in relation to the preparation of disclosures of directors’ loans.
The banks were also directed to publish the amount owed by directors at the beginning and end of a financial period and the maximum level of liability during the period.
Societies reveal bankers’ loans
EBS AND Irish Nationwide have had to disclose outstanding loans to senior bankers and former senior bankers as part of initial preparatory work carried out in advance of the proposed merger of the two building societies.
The two institutions have also had to reveal whether the loans are in arrears before they receive up to €2.4 billion in recapitalisation funds from the Government.
Irish Nationwide is understood to have received queries from the Financial Regulator on the level of borrowing to bankers and former bankers at other institutions.
The regulator is investigating lending practices at the building society following the disclosure by RTÉ's Prime Timelast month that Fianna Fáil politicians received loans from Irish Nationwide with minimum paperwork involved.
Accountants PricewaterhouseCoopers (PwC) are conducting a review on behalf of the Government of how much both lenders will require to be recapitalised. The firm has been working on the Government’s bank recapitalisation plan since the height of the financial crisis during the autumn of 2008.
The Irish Timesreported last week that PwC had completed a draft due diligence report on EBS and Irish Nationwide which will form the basis of further merger discussions between the two institutions over the coming months.
EBS is believed – in preparation for recapitalisation by the State – to have disclosed loans of close to €7 million that former Anglo Irish Bank chairman Seán FitzPatrick drew through the society's broker subsidiary Haven to buy investment properties in 2008. Simon Carswell
