Three senior executives at Davy stockbrokers resign over bond deal

Stockbroker Davy has announced that its chief executive, Brian McKiernan, has resigned from his position as CEO.

The board of the company has also accepted the resignations of Kyran McLaughlin from his role as a non-executive Director and of Barry Nangle from his executive role as Head of Bonds at Davy. 

The company said all three offered to step down following the recent fine by the Central Bank of Ireland arising from a 2014 bond transaction.

"In accepting their resignations, I acknowledge their substantial contribution to the development of the company over many years," said Davy chairman John Corrigan.

"As we reflect on the Central Bank investigation our priority now is to restore trust in the integrity and robustness of our control environment and culture, and to ensure we provide our clients with the standard of service and protection that I know our people are committed to."

In a statement, Mr McKiernan said he regrets his role in the transaction and is very sorry for the hurt that it has caused to the reputation of Davy and its people.

"I have decided to stand down from my role as my continued presence in light of the extended commentary on those events is damaging for the company and my colleagues," he added.

While Mr McLaughlin said he had told the chairman that he was bringing forward his planned full retirement from the company next year.

He also said he is now retiring from his role as non-executive Deputy Chairman of the company with immediate effect.

"Having previously stepped back from a full-time role in 2018 this will bring a close to my long association with Davy in an executive or leadership capacity," he added.

Bernard Byrne, Deputy CEO of Davy, has been appointed interim CEO.

The firm said that following the resignations the board will comprise entirely of directors who joined it after the 2014 transaction, a majority of whom are independent non-executive Directors. 

"Board consideration of the findings of the Central Bank investigation is ongoing," it said.

On Tuesday, the Central Bank fined Davy €4.13m for breaching market rules in relation to a transaction involving the broker's own staff.

The fine was the biggest of its kind ever levied on a broker in Ireland and related to a transaction in November 2014.

The regulator found that a "consortium" of 16 Davy employees, including a group of senior executives, bought what are understood to have been unlisted corporate bonds from a client at an agreed price.

But the client was not made aware that the consortium was made up of Davy employees.

The Central Bank found Davy failed to put in place a system to prevent a potential conflict of interest when employees entered into personal transactions.

It also found that Davy's compliance section were "sidestepped" by the consortium.

The regulator concluded that in permitting the transaction to go ahead, Davy had acted "in a reckless manner".

It prioritised facilitating an opportunity for the group of employees to "make a financial gain" over sticking to the rules and posed a risk to the client, the Central Bank said.

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Minister for Finance Paschal Donohoe described the behaviour as exceptionally serious and said it fell gravely short of the standards of behaviour expected of leaders in positions of financial responsibility.

He also called on Davy to comment publicly on the matter.

The following day, Davy published a statement saying it deeply regretted "the shortcomings that emerged from the Central Bank of Ireland's investigation" and apologised "unreservedly and unequivocally that these failures occurred".

It also said that there has been "a process of Board, management and staff renewal over recent years," and that the current Board is "satisfied that the issues that occurred in 2014 could not recur".

It also stated that it has commenced a "detailed review of the findings so as to ensure that lessons are learnt and appropriate actions are taken".

Today, a spokesman for Mr Donohoe said the minister notes the announcement by the chairman of Davy.

The Central Bank also said it noted the resignations.

"The Central Bank reiterates that this case serves as an important reminder that conflicts of interest are an inherent risk to all regulated entities, and when not properly managed, they pose a risk to investors and diminish market integrity," it said.

Sinn Féin spokesperson on Finance, Pearse Doherty, welcomed the resignations.

But he said it should not have been left up to those individuals, or anyone else in the financial sector, to decide what counts as accountability.

The Social Democrats co-leader, Roisin Shortall, described the resignations as a "starting point".

But she added that a number of unanswered questions remain which she has posed in a letter to the Governor of the Central Bank.