All my Irish readers will be aware of the recent scandal involving our beloved bank AIB. In short they ‘mistakenly’ overcharged foreign exhange transaction customers by 100%.
Yes you read it right, instead of the agreed 0.5%, they instead charged 1.0%. Accidentally. For a decade. They also had to check that they were charging the correct amount, under the then regulator, the Director of Consumer Affairs. They checked, apparently, and still said everything was hunky dory. It wasn’t.
Thanks only to a whistleblower, we now know that they were overcharging.
And so to the reaction of our Finance Minister, Charlie McCreevy. He loves AIB I think. In a report in the Irish Times, it is noted that the new powers to be given to the IFSRA actually amount to very little. Here is an exerpt of the report.
Outlining the sanctions that a regulatory authority can impose on a financial institution, Mr McCreevy said the authority “may agree with a financial institution that the institution should pay an appropriate penalty, not necessarily requiring the institution to formally acknowledge its guilt”.
Am I reading that correctly? So the regulator sits down for tea with the bank and a bit of a chat. “Pay the fine lads” , “but remember you don’t have to admit you are guilty”. Could that even be defined as regulation? Are we the only country in the world to treat our banks as if they are bastions of virtue? The report continues:
Where an institution admits it has “committed a contravention, the authority can agree an appropriate penalty with that institution without going through a formal inquiry process.” If either side does not wish to avail of these options, “there is provision for a formal inquiry by the authority leading to a formal determination”.
So there is no inquiry either? The banks must be loving this, who have they employed to lobby the government? He must be a bloody genius. It’s not actually regulation at all, it seems to be a series of gentlemanly agreements between the ‘regulator’ and the bank.
I believe in other countries, where a bank has been found to be doing what AIB was doing, the regulator decided not to begin working with the bank to correct the ‘mistake’, but instead shut down all of the banks activities in that area – i.e. foreign exchange – until such time as it was satisfied that the situation had been corrected.
Of course this is Ireland. We do things differently here.
“So the regulator sits down for tea with the bank and a bit of a chat. “Pay the fine lads” , “but remember you don’t have to admit you are guilty”. Could that even be defined as regulation? Are we the only country in the world to treat our banks as if they are bastions of virtue?”
No, the American SEC has consent decrees, where the organisation or person being investigated pays a fine and commits to desist from doing anything naughty, without admitting any wrongdoing. This saves the regulator the cost and much greater burden of proof needed to take a civil court case, which is then multiplied in the case of a criminal case. It also makes for faster reaction times in correcting misdeeds.
However, since nobody but Liam Lawlor goes to jail for white-collar crimes, the incentive to come to an arrangement with the government is obviously much less. Maybe this element is the one needed most.
This is like any kind of crime. when somebody breaks into your house and steals some cash, you don’t shake your finger at the person responsible and demand that their employer reemburse for the crime: you punish the criminal.
In this case, it’s the top brass. Fining the company only hurts the shareholders who, in good faith, expect the senior management to look out for their interests. It *encourages* this kind of behaviour because they know that if they *are* found out, it’s just a slap on the wrist, a fine, and nothing more.
I mean, if you drives wrecklessly, you have your licence revoked. Why not do the same thing with management and at least remove them from their current post and stop them from managing companies for a time.