Better regulation will boost financial sector - Elderfield

AN IMPROVED risk-based approach to regulation will encourage rather than inhibit activity and employment in the financial services sector, the Financial Regulator told representatives from the financial services industry yesterday.

Matthew Elderfield was speaking at a Financial Services Ireland conference where he outlined the new regulatory framework for financial institutions in the Republic.

William Slattery, head of financial services company State Street’s Irish business, said many in the financial services industry feared the new regulatory regime would “result in a very high level of inflexibility and conservatism in terms of decision-making” and may be “detrimental” to the export of financial services.

Fergus Murphy, chief executive of EBS, said while regulation was necessary, “human psychology” inevitably meant that the pendulum might swing too far to the right in terms of regulation.

Mr Elderfield defended his regulatory approach, pointing out that a mix of rules and a priniciples-based approach to regulation would be adopted, and the level of regulation imposed would be proportionate to the risk profile of the sector or firm.

He said a “risk impact framework” would be introduced which would categorise various types of financial firms based on their inherent impact or risk level. This would then determine the level of regulation imposed.

“The fact that Ireland will have an enhanced regulatory structure will be an opportunity for Ireland to attract foreign financial services. Better regulation will be welcomed not just by regulators but by international investors and businesses.”

Responding to Mr Murphy’s comments that property-fuelled “mass hysteria” as well as the actions of individual banks had contributed to Ireland’s financial crisis, Mr Elderfield said he accepted there was a general problem in terms of attitudes but there were “serious failures” by senior management at financial institutions, many of which were currently being investigated by gardaí. The over-dominance of chief executives in certain financial institutions was one of the contributing factors in Ireland’s financial crisis.

On banking recapitalisation, he said his decision to impose a requirement of 8 per cent core tier 1 capital and 7 per cent equity capital on banks was sufficient and there would be no “second act” in the process of recapitalising the banking sector.

He said the new capital levels prescribed by his office mean that Irish banks would have “little distance to travel” to meet the standards required by Basel III.

Mr Elderfield also indicated that he would increase staff numbers at the regulator’s office in the Central Bank to ensure that the office could conduct investigative and enforcement activities as well as supervisory functions.

Some 200 representatives from the financial services, funds and insurance industry attended yesterday’s conference, which was addressed by videolink by two senior officials from the European Commission.