There were shortcomings in the regulation of financial institutions in Ireland, according to a special report by the Comptroller and Auditor General on the Financial Regulator's response to the financial markets crisis.
The Comptroller's report, completed before the announcement of an inquiry into the banking crises, says there were also shortcomings in the EU and further afield. It says the Regulator acknowledged, in retrospect, that 'the actions it took were insufficient and were not taken early enough'.
The report says little new, but it does examine the issue of secret loans to directors at Anglo Irish Bank.
Read a summary of the report here
Read the full report here
It says the Regulator has begun a process of intensifying supervision of financial institutions, by having a more regular 'on-site' presence, increasing banks' reporting requirements and also attending some banks' meetings.
The Comptroller and Auditor General, John Buckley, suggests that in order to make regulation more accountable an annual statement on supervisory matters could be required by the Dáil from the regulator. He also recommends that auditors give annual assurances that banks are complying with corporate governance rules to strengthen public confidence.
He says there should be a greater emphasis on examining actual financial transactions and and balances in financial institutions, rather than just systems and controls. The report says the regulatory system can work best when informed by on-the-ground evidence..
John Buckley recommends a 'tripartite' review by the Central Bank, the Regulator and the Department of Finance to look at the effectiveness of the measures they took individually and collectively during the crisis.
The report also shows that the running of the Financial Regulator's office cost €60m in 2008, with half of this accounted for by staff costs.
The report looks at the issue of secret loans to directors at Anglo Irish Bank, which mainly concerned €87m of borrowings extended to former chairman Sean FitzPatrick.
The report says the information about the loans was included in quarterly returns from the bank to the regulator, so the hidden loans could have been picked up much earlier. It says the Financial Regulator did not use its discretion initially to alert corporate enforcer Paul Appleby.
It did not pursue the matter with Irish Nationwide, which warehoused the loans. The regulator's discussions with Anglo were not broadened to the bank's internal or external auditors.
The Financial Regulator welcomed the report, saying new procedures and processes had already been put in place to address many of the issues identified. It said it was currently finalising its strategy to take account of reforms outlined recently by the new head of financial regulation Matthew Elderfield, who pledged a more 'assertive' approach.
Finance Minister also welcomed the report, saying he would publish a Bill later this week to reform the Central Bank and Financial Services Authority of Ireland.
He said his planned regulatory reforms would address the problems identified by the C&AG General and respond to his recommendations.
