Regulatory reform

AMONG VARIOUS responsibilities, the Consumer Consultative Panel (CCP) at the Financial Regulator is required to monitor how the…

AMONG VARIOUS responsibilities, the Consumer Consultative Panel (CCP) at the Financial Regulator is required to monitor how the regulator is performing its functions. But as CCP chairman Raymond O’Rourke explained in presenting his annual report for 2008, it was unable to exercise its supervisory role for a critical period last year. The reason was the failure by the Minister for Finance to reappoint the panel last September when its term expired.

It meant that last autumn, when the global financial crisis intensified and the Government guaranteed the liabilities of six Irish banks and nationalised Anglo Irish Bank, the panel “was not in a position to highlight the consumers’ voice”. During that period Irish banks lost 90 per cent of their stock market value and the chief executive of the Financial Regulator retired early.

After a five-month delay, a new panel was finally appointed last February and in May the panel published a report that was highly critical of the performance of the regulator. It said that most consumers had lost “significant amounts of money” due to the inadequacies of the financial regulatory structure. And it was critical of the regulator’s failure to dampen the domestic property bubble sooner.

In recent months, however, some major initiatives have been taken at national and international levels to address regulatory failures in banking and financial systems. The EU is considering a systemic risk council, operating under European Central Bank control. This would assess risks to the financial system and would allow for follow-up action to be taken in member states. A European system of financial supervision is also proposed. This would involve greater co-ordination and co-operation between financial supervisors at EU and national levels.

READ MORE

At home, the Government proposes to create a single regulator – the Central Bank of Ireland Commission – with responsibility for financial stability and for supervision of financial institutions. It contends that that reform will mark the end of light-touch regulation that failed so clearly when banks engaged in reckless lending without adequate supervision, creating a property bubble that has burst with disastrous consequences. It has left the banks with huge loan losses and close to insolvency, while taxpayers find themselves serving as lenders of last resort. In this light, regulatory reform was never more necessary but the Government has some way to go to restore public confidence in our banks.