IN HIS first public speech, the new head of financial regulation, Matthew Elderfield, has outlined plans to adopt a much tougher approach to the supervision of the banking and financial sector.
There needed to be “assertive risk-based regulation underpinned by a credible threat of enforcement”, said Mr Elderfield, but he warned that this would require substantially increased resources and more stringent powers.
“Ireland is competing as a premier financial services centre. But you can’t referee a Premier League match with one linesman and no red card in your pocket,” he said in an address at a lunch hosted by the Leinster Society of Chartered Accountants.
Mr Elderfield, who took over his role in January, said he planned to set up a division dedicated to enforcement with, for the first time, special investigative units.
The regulator’s immediate priority was the recapitalisation of the banking sector, he said.
“A robust recapitalisation exercise will ensure that Ireland’s banks start this process in a stronger position and with a better funding outlook,” he said.
The regulator was stress-testing the loans left behind at the banks following the transfer of €77 billion to the National Asset Management Agency (Nama) to determine “a prudent target capital requirement that is informed by emerging best practice internationally”.
The recapitalisation exercise would “draw a line under the banking crisis”, he said.
New measures would be introduced to prevent “future excesses of concentrated lending against individual sectors by developing tougher standards for concentrated exposures”, he said.
There had been “fundamental failings in corporate governance”, and proposals would be introduced for more stringent fitness and probity requirements, and guidelines on pay and risk-taking.
Mr Elderfield said the banks would be reviewed to check that they were complying with the 12-month moratorium on legal actions against home owners in arrears on their mortgages.
He was keen to see firms “move more quickly to clear backlogs in handling overcharging cases”, and warned they would face enforcement action if timelines were not met. “I would encourage firms to act now to accelerate their work before we get in contact.”
On overhauling regulation, there had to be “a judicious mix” of rules-based and principles-based regulation, “rather than swings between the extreme”.
There would not be a “one size fits all approach”, he said, adding that “a systemically important bank” should expect “a much more intrusive approach” than fund companies with a lower-risk profile.
“High-impact firms and those with a poor track record should not expect to receive the benefit of the doubt from me or my staff when the best approach to addressing a risk is a point of contention between us,” he said.
The regulator will maintain open dialogue with a firm’s senior management, but if it was unconvinced by their plans, “we will be prepared to substitute our prudential judgment for their commercial one and say: Just do it.”
