The Central Bank has fined KBC Bank Ireland €1.4m and reprimanded it for breaches of certain financial regulations from September 2012 to February of this year.
In a statement, the Central Bank said that KBC Bank Ireland breached the Code of Practice on Lending to Related Parties, which guard against abuses in lending to those close to senior figures of a bank.
This is the first enforcement action brought by the Central Bank against a bank for breaches of the code.
The code was introduced by the Central Bank in 2011 to guard against abuses in lending to related parties and as part of its regulatory approach following the financial crisis.
Under the terms of the code, financial firms and banks must obtain the prior approval of their board or a subcommittee before they can enter into or vary loan transactions with related and/or connected parties.
These include directors, senior managers, significant shareholders of the firm and spouses or domestic partners.
The Central Bank said the lender breached the code on 18 separate occasions.
The regulator drew attention to the fact that KBC did not seek the approval of its Related Party Lending Committee before it extended the maturity date on a number of loans, including a €6.6m loan facility to a related party on eight occasions from September 2012 to October 2014.
It also noted that the bank's policies and processes which were in place "were not adequate to identify loans to related parties". It found a lack of awareness by staff across three separate divisions, a gap in training processes and procedural weaknesses.
Although the loans were found not to have been advanced on terms any more favourable than those to ordinary borrowers, the Central Bank said the breaches of the code were serious and this was reflected in the size of the fine.
In deciding the size of the fine, the Central Bank said it considered the multiple business areas across which the breaches occurred, the period of time over which they occurred, the fact that most of the breaches occurred after on-going Central Bank intervention and engagement with KBC and the need for an effective deterrent impact on other regulated entities.
The Central Bank's Director of Enforcement, Derville Rowland, said that related party lending is an issue of significant prudential concern for the Central Bank, particularly in the context of identified failings at the time of the financial crisis when loans were issued to related parties without adherence to internal controls and procedures.
"This code represents an important component of the Central Bank's response to failings associated with related party lending and was introduced to seek to prevent abuses and address possible conflict of interests in this area," she stated.
"Such repeated breaches of the code, in spite of on-going Central Bank intervention and engagement with the firm, is unacceptable and demonstrates a failure on the part of the firm to have in place and adhere to the necessary policies and processes to ensure effective compliance with the code," Ms Rowland said.
"This is reflected in the level of the fine and the reprimand issued today and accepted by the firm," she added.
