Bankers ‘will find it harder to circle wagons’ under planned laws

The Government’s plans to introduce laws to make top financial executives individually accountable for failings under their watch will be key to changing the culture of the sector to focus on customers, according to the Central Bank’s head of policy and risk.

The proposed rules "will be very helpful and instrumental in helping drive cultural change" in financial companies and make it more difficult for bankers to "circle the wagons" when they fall under investigation for failings, Gerry Cross, director of financial regulation, policy and risk, told the Oireachtas finance committee on Thursday.

Minister for Finance Paschal Donohoe committed last year to act on a Central Bank proposal to introduce legislation to pave the way for a so-called senior executive accountability regime (Sear), which would make it easier for regulators to fine, reprimand or disqualify a manager in a financial firm.

The rules would initially be aimed at banks, insurers and some investment firms.

Central Bank says Irish banks need ‘systemic risk buffer’ against shocks

---

UK watchdog orders ringfencing of ‘Big Four’ accounting businesses

---

AIB and First Data confirm deal to buy Payzone for €100m

---

Irish Times view on the new Irish Banking Culture Board

---

The recommendation was included in a Central Bank report published last July into the culture of the State's banks in light of tracker mortgage scandal. Almost 40,000 mortgage holders were denied their right to a cheap loan linked to the European Central Bank (ECB) main rate, or put on the wrong rate, according to the latest figures.

Crucially, the Central Bank proposal envisages the lifting of an existing requirement that supervisors must initially find that a firm breached financial laws before proving that an individual participated in this.

“The current hurdle of ‘participation’ should be removed such that the Central Bank could bring individuals to account directly for their misconduct under the administrative sanctions procedure, rather than only where they are proven to have participated in a firm’s breach of rules,” Mr Cross said.

Executive responsibility

The rules will require firms to set out clearly where responsibility and decision-making lie. They will impose a requirement that senior executives “take all reasonable steps to ensure the area of the business for which they are responsible is controlled effectively and complies with any regulatory requirements,” Mr Cross said.

While the Minister said last November that he planned to have the outline of the proposed new laws published by the end of March, this has been delayed as the Government has been preoccupied by Brexit. Mr Donohoe said on Wednesday that he planned to seek Cabinet approval for the Central Bank (Amendment) Bill “well in advance of the summer” and to debate it after the summer recess.

While Mr Cross said the banking industry’s establishment this week of the Irish Banking Culture Board to help restore trust in the sector was “welcome”, it was only one element of what was needed to drive improve behaviours and standards within the industry.

He said the proposed rules would make incidents such as the tracker-mortgage debacle, as well as “prudential financial stability or conduct events” less likely in future.

The Central Bank is allowed by its current sanctions regime to fine individuals up to €1 million, reprimand them and bar them from a senior role in a financial firm for an indefinite period.