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2 March 2010: Governor Central Bank of Ireland - Introductory Statement Joint Oireachtas Committee on Finance and the Public Service

 

The Governor of the Central Bank of Ireland (Patrick Honohan) appeared before Joint Oireachtas Committee on Finance and the Public Service today (2nd March 2010) to explain his pending report on the banking crisis which has the working title 'The respective functions of the Central Bank and Financial Regulator'. The report will cover in particular to the regulator's and the bank's work “in assessing and responding to risks to the stability of individual institutions as well as to the banking system as a whole”.

 

The Governor states that it will be possible to establish a fairly clear and comprehensive understanding of the matters in question. He is also hopeful that satisfactory conclusions can be reached on many issues, leaving only a relatively limited number of open questions of significance requiring further investigation.

 

The Governor also refers to the separate report of Mr Klaus Regling and Mr Max Watson which looks at (among other things) the performance of the banks and banking system generally. The Governor intends to submit his report no later than the end of May 2010. In addition to file reviews, the Governor will interview a number of officials of the Financial Regulator and the Bank who were intimately involved over the period under examination.

 

In his opening remarks, The Governor admits that “it might be considered surprising that it falls to me to enquire into my own organisation”. In another time and another place, it might be felt that internal inquiry by the head of the organisation alone would invite allegations of whitewash and cover-up. Refreshingly, Professor Honohan departed from the structure of his prepared statement to emphasise his statement “I have begun this task with the presumption that the situation that has emerged in our banking system does reflect a failure of the regulatory system.” Yet he also states his rationale for his presumption - in short being that the Financial Regulator and Central Bank have many other functions than simply banking supervision and that there is no claim that those other areas failed - e.g. consumer protection, consumer information, effective electronic payments systems, avoidance of excessive inflation as part of its Eurosystem objectives, the supply of liquidity to the banking sector, and the production and issuance of bank notes and coins.

 

The Governor said that “we understand some of what happened, but some of it is still hard to understand” and that new procedures and arrangements are being put into place to take account of what we have learnt to date. The Governor concludes his introductory statement with the following: "I hope that my report can help develop that understanding further and help us all emerge from our current difficulties with a degree of restored confidence."

 

It is clear already that internal and external governance and regulation considerations are going to comprise a significant element of this report.  Responding to a question by Joan Burton of the Labour Party as to whether the role of individuals would be considered in his report, the Governor noted that he felt he could “go a long way” towards providing desired levels of detail, but it was important to avoid becoming ensnared in interminable legal problems.

 

When Klaus Regling and Max Watson, authors of the other report commissioned by the Minister for Finance appeared in front of the same Committee on 25 February, they noted “Even an innocent and preliminary reading suggests regularity in the types of problems experienced. This regularity arises, for example, in the area of corporate governance…..We must, therefore, focus on the kind of governance issues which arose.”

 

Corporate Governance responsibilities are a theme also addressed by UCD Corporate Governance academic, Professor Niamh Brennan in a recent interview where she gave an insight into her own former role as a non-executive bank director of Ulster Bank – “If the Regulator was not raising problems and questions and issues, should I have been? Should I have copped on that we had a problem, if the people on whose expertise I was relying hadn’t cottoned on either?”

 

Other comments by Messrs. Regling and Watson indicate they also will probably have some comment on the role of the Financial Regulator in their report: “There is a strong role for the public sector because it has to set the incentives and the framework in which the market participants can operate.”

 

Whatever the final form of these two reports when issued in May 2010, we can expect considerable focus on governance of the regulator and the regulated.

 

Click here for copy of statement.

 

2 March 2010: AML Bill before Seanad Éireann, update on transposition of 3rd Directive & comments PEP test

2 March 2010:

The Criminal Justice (Money Laundering and Terrorist Financing) Bill 2009 goes to Second Stage before Seanad Éireann today, Tuesday 2 March 2010 at 2.30p.m.. If you are interested you can watch 'all the action' live today from 2.30p.m. at www.oir.ie (Oireachtas Live).

 

1 March 2010:

The transposition of Ireland’s international obligation to implement the 3rd EU Money Laundering Directive (Directive) continues, although slowly, through the Oireachtas (Ireland’s Parliament).  The Bill, known as the Criminal Justice (Money Laundering and Terrorist Financing) Bill 2009 (Bill), was passed by Dáil Éireann (Irish Lower House) on 17 February 2010.  It is now with the Seanad Éireann (Irish Upper House) and is scheduled for consideration at Second Stage tomorrow (Tuesday 2 March).  It is expected that the Bill will have a swift passage through the Seanad and hopefully will pass into law by the end of March.  Word on the street is that the Government would like to have the law passed before St Patrick’s Day (17 March 2010).  Although the Irish use any excuse to raise a pint of Guinness, I don’t expect the pre-St Patrick Day’s passing of the Bill to be such an occasion.  In any event it will take a truckload of the black stuff to wash this Bill down.  The current edition (as of today) is located at http://www.complianceireland.com/Resources.html#AMLBILL.

 

 

PEP - issue of cohabitant and extension of test to include beneficial owner

We will write more Hot Topics on the Bill in the coming weeks.  However one point to raise now is that of the treatment of politically exposed persons (PEP).  We wrote previously about Ireland extending the PEP test to include cohabitants of family members.  Although “it ain’t over ‘til the fat lady sings” (i.e. until the Bill is passed into law) some semblance of intelligent thought has been applied to the Bill in this area.  The new draft Bill has removed ‘cohabitants’ of PEPs and of their children from the list of persons upon whom the PEP test is to be applied.  The definition of “immediate family member” in the Irish Bill more closely follows the definition in the Directive except that the Irish Government may prescribe other persons (i.e. family members) as being “immediate family members” if it so wishes. Another interesting aspect to the Irish Bill, in its current form, is that “designated persons” (i.e. those required to apply anti-money laundering and counter-terrorist financing policies and procedures) will be required to “take steps to determine whether or not a customer, or a beneficial owner [my underlining] connected with the customer or services concerned … residing in a place outside of [Ireland], is a politically exposed person or an immediate family member or a close associate of, a politically exposed person.” (see section 37 of the Bill).

 

The proposed section 37 requires, rather strangely, that the designated person is to determine whether a beneficial owner connected with the customer or service is a PEP, an immediate family member or a close associate of a PEP.  It strikes me that the Irish definition may be circular.  The Directive requires designated persons “to determine whether the customer is a politically exposed person …” etc (see Article 13(4)(a) of the Bill).

 

Implementation Date

Assuming the Bill is signed into law on or near 31 March 2010, the next issue for Ireland to consider will be the implementation date.  Ireland is already under pressure from (including issuing of infringement proceedings by) the European Commission to implement the law which should have been transposed by December 2007.  Whether the Commission will entertain Ireland providing designated persons with a three (3) month lead-in time is yet to be seen.  However it is understood that most submissions to the Government on the Bill called for a three (3) month lead-in time to allow designated persons to implement any necessary changes.  Others have, it is understood, asked for a six (6) month, and longer, lead-in time. 

Assuming the Bill is signed into law on 31 March 2010 and the Government allows for a three (3) month lead-in time, designated persons (at least those already covered by the 2nd Directive standards) will be operating under the new law no later than Thursday 1 July 2010.

 

See our training page for dates for upcoming Anti-Money Laundering and Counter-Terrorist Financing courses and seminars.

 

22 February 2010 - Financial Regulator queries Insurance Firms regarding Cash Funds

 

The Financial Regulator has written to insurance firms requiring the submission of information relating to investment products which are marketed as being invested in cash or partially invested in cash. The Financial Regulator states that where such funds invest in variable instruments such as floating rate notes there may be issues “in regard to policyholders’ reasonable expectations”.

 

Further details and a copy of the Financial Regulator's letter are available on our specialist website http://www.solvencyii.ie/whats-new.php.

 

18 February 2010 - Financial Regulator sets out Transaction Reporting Stance at Compliance Ireland MiFID Update Seminar

 

Mr. Martin Moloney, Head of Markets Supervision, has set out the Financial Regulator’s position on transaction reporting while speaking at the Compliance Ireland MiFID Update Seminar in Dublin on 18 February 2010.

 

While discussing experience to date and future prospects, Mr. Moloney took the opportunity to deliver a clear message to all reporting firms about the need to work proactively on the quality and timeliness of their data reporting.

 

Investment firms were reminded of the onus on them to live up to their responsibilities, whether using outsourced services or not. Mr. Moloney warned that “any firm that fails to properly report its transactions poses a very real threat to us meeting our statutory objectives, which exist for the benefit and protection of the market.” This is very similar to the language used by the UK FSA in its Final Notice when it fined Barclays Bank £2.45 Million for failures in transaction reporting in September 2009.

 

The Financial Regulator reported having spent a significant amount of time to date working with reporting firms to improve the quality of the transaction reporting data and that such work is proving extremely challenging given both the volume and complexity of transaction reporting data. While the Financial Regulator sought to work with firms in a collaborative manner, a number of deficiencies were instanced. The need to ensure all reportable transactions were captured was stressed in particular.

 

Where systems changes by reporting firms led to deterioration in the quality of reporting, the Financial Regulator stated that this would be regarded as a “failure of diligence” rather than an unavoidable accident. Failure to utilise good I.T. development methodologies and business process design would be seen as “a reflection on the professionalism of the underlying firm”.

 

The accuracy of reports received was also cited as a significant concern to the Financial Regulator. A number of common reporting failings were instanced. While the Financial Regulator had been tolerant of initial teething problems it was warned “not all firms are doing the kind of sample checking and error reviews that we expect to see to push up data quality”.

 

The Financial Regulator was of the opinion that firms have had sufficient time to identify and correct any deficiencies in their transaction reporting systems and processes. Mr. Moloney cautioned “If we continue to find significant quality problems and we do not see evidence of consistent effort along those lines, then it seems to me the case for moving to the use of administrative sanctions will become very much stronger.”

This key statement of position is perhaps the clearest signal yet from the Financial Regulator that enforcement will occupy a much more prominent place in its relations with regulated firms as it seeks to encourage desired behaviour and governance outcomes.

 

Click here for a copy of the speech by Mr.Martin Moloney, Head of Markets Supervision, at the Financial Regulator.

Click here for article in Sunday Tribune (Jon Ihle) Sunday 28 February 2010 on MiFID transaction reporting.

 

15 February 2010 - Bill Prasifka appointed financial Services Ombudsman

 

Bill Prasifka, currently Chairman of the Competition Authority, was appointed today to the independent office of Financial Services Ombudsman. Mr Prasifka succeeds Joe Meade who retired on 3 January 2010. He will take up office by the end of March 2010. Mr PJ Fitzpatrick who was appointed as Interim Ombudsman on January 3rd (who was not an applicant for the position) continues as Interim Financial Services Ombudsman until then.

 

Mr Prasifka has been Chairman of the Competition Authority since March 2006. Mr Prasifka previously worked as the Irish Commissioner for Aviation Regulation and had previously been a member of the Irish Competition Authority. He replaced John Fingleton at the Irish Competition Authoriity who left to become chief executive of the UK Office of Fair Trading.

 

Prior to these appointments, Mr Prasifka was in private practice, in New York and then in Dublin, advising in the areas of Irish, European and American competition law. Mr Prasifka studied at Columbia University School of Law.

 

When the role was advertised in late 2009, the job specification stated that the salary would be at Deputy Secretary Level salary (now circa €168,000 following recent civil service pay reductions)*. The term of office is to be three years and Mr Prasifka is entitled to 31 days leave a year according to the job specification.

 

It will be interesting to see how Mr Prasifka differs from Mr Meade in carrying out his functions. The Sunday Business Post (06/12/2009) reported that the role, advertised in the national press, attracted 40 applicants. Salary for the role, although it looks high at €168K, is well below what Mr Prasifka could probably command elsewhere. This no doubt demonstrates his continuing commitment to the public service in Ireland. John Ihle from the Sunday Tribune has been following this story. Here is a link to his most recent article on the topic. Jon Ihle is also following developments at the Financial Regulator and his articles are worth a read.

 

*The Irish Times (as at 24/12/2009) reports that recent adjustments will see the pay of deputy secretaries in Government departments fall by 14 per cent. This means a deputy secretary who up to now received a salary of €177,547 plus an average performance-related award of €17,755, giving a totally of €195,302 will see this figure reduced to €168,000.

 

• Press Release from FSO Council - click here

 

12 February 2010: FINANCIAL REGULATOR ISSUES POLICY UPDATE 02/2010 - Collateral passed by UCITS to OTC derivative counterparties

 

The Financial Regulator today (Friday 12 February 2010) issued Policy Update 02/2010 on passing of collateral from a UCITS to an OTC Derivative Counterparties.

 

Notwithstanding the requirement of the UCITS Regulations that assets must be entrusted to a trustee for safe-keeping, the Financial Regulator has historically permitted assets to be passed outside of the custodial network as collateral for transactions on margin.

 

UCITS funds are permitted to invest in financial derivative instruments, including OTC derivatives. The Committee of European Securities Regulators issued Level 2 implementing measures advice to the European Commission in October 2009 which included consideration of the passing of collateral by a UCITS to an OTC counterparty (or broker) in respect of financial derivative instruments. The market practice of requiring collateral or margin to be passed from the UCITS to an OTC counterparty or broker (for OTC financial derivative instruments) was not considered to offend the UCITS Regulations.

 

CESR's advice also noted that (i) collateral passed must be taken into account in calculating FDI risk exposure to the OTC counterparty, and (ii) collateral passed may be taken into account on a net basis only where there is a legally enforceable netting arrangement in place.

 

Following the collapse of Lehman Brothers, counterparty risk has become a much more prominent consideration. Collateral and netting is a complicated area at the best of times – UCITS funds are already defined as “supervised financial institutions” in the European Communities (Financial Collateral Arrangements) Regulations 2004, which also deals with netting and use of collateral.

 

The Financial Regulator’s Policy Update noted this advice and advised that the UCITS Notices and Guidance Notes are to be updated shortly to reflect the provisions of the UCITS IV Directive, the implementing measures and any further CESR guidelines. CESR's work on risk measurement, including the calculation of counterparty risk for UCITS, is ongoing. CESR's intention is to provide detailed Level 3 guidelines in these areas.

 

Click here for a copy of the information note (Policy Update 02/2010).

 

9 February 2010: Financial Regulator issues POLICY UPDATE 01/2010 - information note on share classes in funds

 

The Irish Financial Regulator has issued an information note today, 9 February 2010 as Policy Update 01/2010, on share classes in funds. The historical public position has been to allow differentiation for fee levels and currency with extensive other dispensations granted on an unpublicised case-by-case basis.

 

This historic lack of transparency regarding the Financial Regulator’s exact policy stance may have hampered product development and acted to discourage foreign interest in Irish fund vehicles. Publication of a framework policy stance is therefore to be welcomed. Let us not forget that one of the Financial Regulator’s High-Level Goals is “Our regulatory approach will facilitate innovation and competitiveness”.

 

With UCITS IV and AIFM Directives set to significantly change the shape of the European funds industry, it is to be hoped that this information note will be kept up to date and periodically republished as a useful tool for persons interested in establishing Irish-domiciled fund products.

 

The information note states that the Financial Regulator will now explicitly permit a wider variety of class differentiators, such as class-level derivatives and interest hedges. The regulator has signalled that it will consider proposals for differing levels of participation or capital guarantee. Leveraged positions and additional participation factors will be permissible for Professional and Qualifying Investor Funds. The regulator will continue to consider new proposals on a case-by case basis, subject to satisfaction that liabilities are segregated.

 

Given the likely wide range of discretionary decisions and the usefulness of a stated policy as a marketing tool for Ireland Inc., it is important that the Financial Regulator communicate in a public, open and transparent manner with market participants.

 

Click here for a copy of the information note (Policy Update 01/2010).

 

4 February 2010: Financial Regulator gives feedback to actuaries

 

The Financial Regulator has published a letter addressed to the Society of Actuaries in Ireland, providing feedback from reviews of Financial Condition Reports and Statments of Actuarial Opinion. Some of the Financial Regulator's comments have Solvency II implications for firms.

 

The Financial Regulator notes that in very many cases reports were not comprehensive enough. The Financial Regulator notes that in the future and specifically with Solvency II in mind, greater technical knowledge will be demanded from Directors than has been the case in the past.

 

This is an explicit signal from the Financial Regulator that it has high corporate governance expectations under Solvency II. While most work on Solvency II to date has concentrated on the valuation models and techniques, Solvency II contains a sizeable body of corporate governance requirements which have not yet been as widely considered by firms.

 

The Financial Regulator notes that few actuaries gave much attention to Solvency II in their reports. The Financial Regulator notes "We believe that it is very important that Boards receive advice on the expected impact of Solvency II".

 

Further details and a copy of the Financial Regulator's letter are available on our specialist website http://www.solvencyii.ie/whats-new.php.

 

 

29 January 2010: Update on Solvency II Internal Models

The Financial Regulator has updated its briefing to the insurance industry on the response to its survey of August 2009 on the intended use of internal models.

 

57 firms indicated that they intended to use an internal model. Of the 57 intending to use an internal model, only 16 will be using an internally-developed model which will require to be approved by the Financial Regulator - the other 41 firms will be importing models developed at group level and authorised by regulators in other EU states.

 

The Financial Regulator noted that survey responses revealed a degree of uncertainty among some firms which appeared indicative of a lack of preparation for the issue and relating to the Solvency II process generally.

 

Further details are available on our specialist website www.SolvencyII.ie.

 

22 December 2009: Review of Credit Union Sector

The Minister for Finance has directed the Financial Regulator to carry out a strategic review of the credit union sector in Ireland. The review will involve an examination of the structure, operation, regulation and legislation of the credit union sector.  The review will report upon recommendations, including specific proposals to strengthen prudential soundness.  The report will provide information and advice relating to the future strategic direction of credit unions.  The terms of reference (ToRs) for the review are not yet known.  No doubt the ToRs will be published once the successful applicant has been chosen to perform the review.  The review will also be influenced by the new Registrar of Credit Unions once appointed.  

 

 

18 December 2009: Financial Regulator publishes settlement agreement with McHugh O'Leary Insurance Brokers Limited

The Financial Regulator has entered into a Settlement Agreement with effect from 18 December 2009 with McHugh O’Leary Insurance Brokers Ltd t/a McHugh O’Leary Insurances (the ‘firm’) of 15 Dublin Street, Carlow, Co. Carlow, relating to failures to comply with certain provisions of the Consumer Protection Code (the Code) and the Handbook for Restricted Activity Investment Product Intermediaries (the Handbook). These related in particular to the sale of commercial lines insurance.

 

The Financial Regulator has reprimanded the firm and required it to pay a fine of €18,000. These suspected breaches were discovered during the course of the Financial Regulator’s Themed Inspections into ‘Charges and Premium Rebates in the Insurance Intermediary Sector’ and is the third Settlement Agreement arising from these inspections.

 

The Financial Regulator has stressed the importance of keeping a firms Terms of Business document up to date and adhering to its terms, particularly in respect of the fees and charges advised to consumers.

 

Click here for the text of the Settlement Agreement.

 

18 December 2009: Recruitment of senior roles by the CBFSAI

• Update: Appointment of Assistant Director-General for Financial Institutions Supervision announced 12 January 2010. Click here to view our Newsletter 01/2010 giving further details.
• Assistant Director-Generals: Enforcement, Policy & Risk and Markets Supervision - see our Newsletter 12/2009.
  • click here to see advertisement
• Registrar of Credit Unions - see our Hot Topic item
  • click here to see advertisement
• General Counsel - initially this role was advertised through the CBFSAI's in-house recruitment office. The position is now being through a search and selection agent. The new position will to the Director General (Matthew Elderfield).
  • click here to see advertisement

 

18 December 2009: Recruitment of new Registrar of Credit Unions

Brendan Logue, the Registrar of Credit Unions, retires from his position in 2010.  The Central Bank & Financial Services Authority of Ireland (CBFSAI) commenced advertising for the new Registrar in daily newspapers on Friday 18 December 2009.  The full job description and application form is available at http://www.candidatemanager.net/cm/Micro/JobDetails.aspx?&mid=YUYF&sid=BDCXCX&jid=FBEVAZWEV&site=Central

Closing date for applications is Friday 8th January 2010.

 

The CBFSAI is also seeking three senior roles at the level of Assistant-Director which will report directly to Matthew Elderfield, the new Head of Financial Regulation.  Another important, although not as senior, role of General Counsel is also being recruited. 

 

The general responsibilities of the new Registrar will include:

• acting as an independent statutory office holder;
• overall responsibility to lead and oversee the regulation of some 400 Credit Unions;
• working within a new Central Bank of Ireland structure headed by Governor Patrick Honohan;
• providing the Director of Financial Regulation with reports and information relating to the performance and exercise of responsibilities of the Registrar’s office, including the effective and efficient use of resources and the value of outcomes and outputs;
• developing the strategic direction of the CBFSAI in relation to credit union affairs;
• registering and supervising credit unions in accordance with the Credit Union Act, 1997;
• overseeing the prudential reporting regime at quarterly and annual frequency;
• taking corrective regulatory action where necessary;
• developing and issuing regulatory guidance to credit unions;
• reporting to the Minister for Finance on an annual basis and, as necessary, to relevant committees of the Oireachtas;
• managing a team of multi-disciplinary professionals in exercise of his/her duties;
• developing strategic input in relation to credit union affairs including - objectives, nature, scope and projects, strategies and policies, resource allocation and targets and criteria for assessing performance.
  

 

One of the key tasks to face the new Registrar will be to deal with the proposed Review of the Credit Union Sector.

 

 

17 December 2009: Solvency II Directive published

The definitive version of the Solvency II framework Directive has been published in the EU Official Journal as Directive 2009/138/EC. The Directive aims to strengthen the supervision and prudential regulation of insurance and reinsurance companies, particularly through the imposition of new solvency and governance requirements.

 

It also establishes a new framework for EU regulation through the recasting of 13 existing insurance directives into a single text.

 

The Directive will come into force 20 days after its publication. Member States will have to implement the Directive by 31 October 2012.

 

Further details are available on www.SolvencyII.ie, our specialist Solvency II website.

 

16 December 2009: Financial Regulator publishes Settlement Agreement with DePfa ACS Bank

The Financial Regulator has reprimanded DePfa ACS Bank and required it to pay a monetary penalty in the sum of €250,000.

 

Click here for our Newsletter 13/2009 on the Settlement Agreement.

Click here for the text of the Settlement Agreement.

 

14 December 2009: Financial Regulator publishes statement about MBNA Europe Bank Limited interest overcharging

The Financial Regulator has issued a Statement that it has been notified by MBNA Europe Bank Limited of an error in the method of charging interest since June 2007 and an error in calculating interest on annual Government tax up to 2007. MBNA expects to re-imburse about €18 Million to affected customers. The Financial Regulator has made no mention of other fine or sanction against MBNA as a result of this. Click here for a copy of the Statement.

 

1 December 2009: Financial Regulator writes to insurance firms again regarding Solvency II implementation

The Financial Regulator has followed up its letter of 5 August 2009 with a further letter requiring registration for approval to use internal risk models. Firms are encouraged to participate in the forthcoming QIS5 study and attention is drawn to the requirements of the Own Risks and Solvency Assessment process. Further details are available on www.SolvencyII.ie, our specialist Solvency II website.

 

1 December 2009: Financial Regulator publishes Minimum Competency Themed Inspection Results

The Financial Regulator has issued an Information Release setting out the results of themed inspections of credit institutions checking compliance with the Minimum Competency Regime requirements. The inspections focused on the grandfathering and register maintenance aspects of the requirements and found unsatisfactory results at all bar two inspected credit institutions.

 

As a result of its findings, the Financial Regulator has written to all credit institutions reminding them of their obligations to ensure that individuals were properly grandfathered and that CPD currency is maintained. Institutions were reminded that responsibility for evidencing eligibility and currency rests with the institution, nt with the individual involved. Click here for a copy of the Information Release.

 

17 November 2009: UCITS IV Directive published

Directive 2009/65/EC was published in the EU Official Journal on 17 November 2009. This directive recasts and repeals the original UCITS I Directive as modified by the UCITS III process. An agreed form of the directive had been published in June 2009 by the EU Council and Parliament, but the Official Journal publication now sets out the definitive text. The Directive is required to be transposed into national law to take effect by 1 July 2011. Click here for a copy.

 

17 November 2009: Capital Requirements Directive, Banking Consolidation Directive and Payment Services Directive amended

Directive 2009/111/EC was published in the EU Official Journal on 17 November 2009. This directive amends the Capital Requirements Directive, the Banking Consolidation Directive (BCD) and the Payment Services Directive. The new directive is required to be transposed into national law by 31 October 2010 to apply from 31 December 2010.

 

The new directive makes a number of changes to the capital requirements for banks and investment firms, principally in the area of large exposure calculations. The directive also includes a mandate for the EU Commission to report by 31 December 2009 on the need for further reform of the BCD to address pro-cyclicality and macro-prudential issues as well as reform of the supervisory system. Other key points are:

• Broadens the range of instruments eligible to be classified as original own funds.
• Includes a mechanism for the establishment of Colleges of Supervisors applicable to both banks and investment firms, for the supervision of individual cases.
• Balances relating to money transmission, clearing, settlement and custody are to be excluded from large exposures calculations.
• Uniform schedules, frequencies and dates for reporting are to be imposed at a European level on both banks and investment firms.

 

Click here for a copy of the Directive.

 

10 November 2009: EU Council adopts revised version of Solvency II Directive

On 10 November the Council of the European Union formally adopted the Solvency II Directive. The version adopted includes a renumbering of the articles and recitals and minor edits from previously published versions. This is not yet the official final version, as the text needs to go through some further formal approval stages before it appears in the Official Journal. No material further changes are expected. Further details regarding the Solvency II process and its implementation in Ireland can be found at Compliance Ireland's specialist Solvency II website www.solvencyii.ie. Click here for a copy of the Press Release issued by the EU Council. Click here for a copy of the Directive as adopted by the Council.

 

5 November 2009: Financial Regulator publishes settlement agreement with Pat Treacy Insurance Brokers and Quick Quotes

The Financial Regulator has entered into Settlement Agreements with effect from 5 November 2009 with Pat Treacy Insurance Brokers Limited and Quick Quotes Limited, both of 261 Crumlin Road, Dublin 12, in relation to failures to comply with certain provisions of the Consumer Protection Code and the Handbook for Authorised Advisors. These related in particular to the sale of general insurance products to customers, including the sale of motor insurance and household insurance.

The Financial Regulator has reprimanded both firms. Pat Treacy Insurance Brokers Limited has been fined €15,000 and Quick Quotes Limited has been fined €7,500. These breaches were discovered during the course of the Financial Regulator’s themed inspections into ‘Charges and Premium Rebates in the Insurance Intermediary Sector’ and relate, inter alia, to failures by the firms to act in the best interests of their clients.

 

The Financial Regulator has highlighted the need for firms to comply with all of the premium handling requirements of the Consumer Protection Code, the requirements relating to monthly reconciliations of client premium accounts and the transactions that are allowable on these accounts.

 

Click here for the text of the Settlement Agreement with Pat Treacy Insurance Brokers Limited.

Click here for the text of the Settlement Agreement with Quick Quotes Limited.

 

31 October 2009: Financial Regulator publishes Prudential Requirements for Payment Institutions

The Financial Regulator has finalised and published its Prudential Requirements for Payment Institutions. These Requirements had previously been circulated in draft form in July but have now been finalised for the entry into force of the Payment Services Regulations on 1 November 2009. The Prudential Requirements set out the minimum capital obligations for Payment Institutions to maintain and list requirements for reporting to the Financial Regulator.

 

Click here to be taken to our resources section for Payment Institutions.

Click here for a copy of the Prudential Requirements for Payment Institutions.

 

22 October 2009: Financial Regulator publishes settlement agreement with Merrill Lynch International Bank Limited

The Financial Regulator has entered into a Settlement Agreement with effect from 22 October 2009 with Merrill Lynch International Bank Limited in relation to two separate incidents which occurred in that bank's London branch. The Financial Regulator reprimanded Merrill Lynch International Bank Limited and required it to pay a monetary penalty of €2,750,000. Click here for the text of the Settlement Agreement.

 

19 October 2009: Financial Regulator announces new Head of Financial Supervision

The Financial Regulator has today announced the appointment of Mr. Matthew Elderfield as Head of Financial Supervision in the new Central Bank of Ireland. Mr. Elderfield is currently the Chief Executive Officer of the Bermuda Monetary Authority. The Head of Financial Supervision will be responsible for the regulatory and supervisory functions and objectives of the Central Bank of Ireland.

 

Mr. Elderfield's appointment was welcomed by the Minister for Finance, who said: “The appointment of Mr Elderfield, particularly given his extensive international regulatory experience, is a key step in the restructuring of financial services regulation in Ireland.”

 

Central Bank Governor Honohan also thanked Mary O’Dea who has been Acting Chief Executive of the Financial Regulator since February of this year when Patrick Neary resigned.

 

Click here for a copy of the Financial Regulator's press release.

 

10 October 2009: New Electronic Money Directive published

Directive 2009/110/EC has been published in the EU Official Journal. This second Electronic Money Directive repeals its predecessor (Directive 2000/46/EC) and will enter into force with effect from 30 April 2011.

 

The Directive is narrower in scope than its predecessor, the first Electronic Money Directive, specifically excluding items such as stored value that can only be realised in a particular store or for a particular range of goods (e.g. petrol cards).

 

The Directive also amends the Banking Consolidation Directive with effect from 30 October 2009, redefining Electronic Money Institutions as a type of Financial Institution, rather than as a Credit Institution. This could have the effect of taking Electronic Money Institutions out of the scope of the recently published Criminal Justice (Money Laundering and Terrorist Financing) Bill 2009 unless an appropriate amendment is processed.

 

The Directive is drafted to dovetail with the Payment Services Directive which somes into effect from 1 November 2009. Electronic money institutions are deemed also to be payment institutions, although the Electronic Money Directive imposes a much higher minimum capital requirement of €350,000. While higher than the amounts demanded by the Payment Services Directive, this represents a considerable reduction from the €1 Million in initial capital required in the first Electronic Money Directive published in 2000.

 

The Directive is a Lamfalussy process directive, meaning it may be amended by supplemental updating directives issued by the EU Commission from time to time. Click here for a copy of the published text.

 

8 October 2009: Financial Regulator publishes Settlement Agreement with JD Murphy Investment Life & Pension Benefits

The Financial Regulator has entered into a Settlement Agreement with effect from 8 October 2009 with Mr James David Murphy trading as JD Murphy Investment Life & Pension Benefits, formerly a regulated financial service provider and Mr James David Murphy and Mrs Ann Murphy trading as JD Murphy Investment Life & Pension Benefits (in their capacity as a partnership), both based in Kilkenny.

 

The Financial Regulator reprimanded Mr Murphy (in his capacity both as a sole trader and as a person concerned in the management of the partnership) and has required the firm to pay a fine of €12,000.

 

Suspected breaches of the Handbook for Restricted Activity Investment Product Intermediaries (the Handbook) or the Consumer Protection Code (the Code) between 25 May 2006 and 3 June 2008 were discovered by the Financial Regulator during the course of an inspection into the sale of ISTC bonds.

 

The Settlement Agreement specifies in detail the issues giving rise to the agreement and the regualtory Code and guidance offended by the conduct involved. A note to industry is included setting out the Financial Regulator's expectations in this area. Click here for the text of the settlement agreement.

 

1 October 2009: European Court of Justice publishes judgement against Ireland for failing to transpose 3rd AML Implementing Directive.

The European Court of Justice has published its judgement in the case taken against Ireland by the European Commission declaring that Ireland has failed in its duty to transpose the 3rd AML Implementing Directive (Directive 2006/70/EC) into domestic Irish legislation by 15 December 2007. As with the 3rd AML Directive (Directive 2005/60/EC) itself, the provisions of the Implementing Directive have been incorporated into the Criminal Justice (Money Laundering and Terrorist Financing) Bill 2009 which was introduced in July 2009 but which still remains at an early stage of the legislative process. Click here for the current status of the Bill. Click here for a copy of the ECJ judgement against Ireland.

 

 

29 September 2009: Financial Regulator publishes Settlement Agreement with Mr. Michael Fogarty t/a Tom Fogarty Insurance Brokers (sole trader)

The Financial Regulator has entered into a settlement agreement with Mr. Michael Fogarty t/a Tom Fogarty Insurance Brokers of Tipperary town with effect from 29 September 2009. Mr. Fogarty has paid a fine of €20,000, has co-operated fully with the Financial Regulator and made full and prompt refunds with appropriate interest to affected customers. The issue arose from a thematic inspection into ‘Charges and Premium Rebates in the Insurance Intermediary Sector' undertaken by the Financial Regulator.

 

The published form of the settlement agreement represents a significant departure from previously published agreements:

• The agreement notice specifies in detail the issues giving rise to the agreement and the regualtory Code and guidance offended by the conduct involved.
• The agreement notice also specifies in detail the measures undertaken by the firm to rectify the situation.
• A note to industry is included setting out the Financial Regulator's expectations in this area, providing a rationale for the action taken by the Financial Regulator.

 

As a consequence the information content of the settlement agreement is considerably enhanced. These greater disclosures are to be welcomed as they provide greater context for the Financial Regulator's decision and promote understanding of the Financial Regulator's expectations. Click here for the text of the settlement agreement.

 

29 September 2009: Department of Finance publishes Payment Services Regulations

The Department of Finance has published the European Communities (Payment Services) Regulations 2009 [S.I.383 of 2009]. These Regulations transpose the Payment Services Directive into Irish law and set out a regime for the authorisation and registration of entities that wish to provide payment services. In the interest of consumer protection, it also lays down requirements for the conduct of business by anybody providing a payment service. The Regulations partly commenced on 30 September 2009 and will fully enter into force from 1 November 2009. Click here for the Regulations.

 

22 september 2009: joe meade, financial services ombudsman (ireland) to retire

 

Joe Meade, the Irish Financial Services Ombudsman has issued a press release announcing his retirement from 2 January 2010. Mr Meade has served Irish and International public services for 42 years and since May 2005 as Ireland’s first Financial Services Ombudsman.

 

During his tenure as Financial Services Ombudsman, Mr Meade lifted the profile of complaints handling and dispute resolutions involving consumers and financial services providers. On many occasions his thinkings and actions have led to holistic changes in the attitudes of financial services companies towards consumers and even pushed the Financial Regulator into action. However Mr Meade also demonstrated fairness to financial firms as he did not always find in favour of consumers. Mr Meade did not shirk from taking on financial institutions especially before the courts although not every court found in favour of his office. Coincidently on the same day that Mr Meade announced his retirement the European Commission issued a report labeling Ireland as a country of 'high [bank] account fees' (but in fairness to banks and others - Ireland was found to have 'very low credit transfer charges'). In the EC's report, Ireland fell into Group 3 (of 4 Groups) and in fact was ranked 16 out of 27 (where 1 was the worst position and 27 the best position). Perhaps without Mr Meade Ireland's position could have been far worse?

 

Previous to his role as Financial Services Ombudsman, Mr Meade was Ireland's Data Protection Commissioner. Again in that role he led thought provoking decisions in the area of data privacy and, similar to his successor as DPC (Billy Hawkes), he did not shy away from taking on government departments as well as large companies, when he believed that data protection standards were being ignored.

 

Compliance Ireland wishes Mr Meade all the best in his retirement. However noting Mr Meade's hard work ethic and demonstrable commitment to the public good, do not be surprised to see Mr Meade appearing in post retirement roles!

 

• Financial Services Ombudsman's Press Release - here
• Article from today's Independent on bank charges - here
• European Commission announcement on report into bank charges - click here
• Data collection for prices of current accounts provided to consumers (Report). Ireland appears at page 60 - click here

 

11 September 2009: Financial Regulator issues Circular Letter to Auditors of Credit Unions

The Financial Regulator has published a circular letter to the auditors of credit unions in advance of the 30 September year end. The letter draws the attention of the auditors to provisions of the Credit Union Act 1997, in particular the requirements not to recognise unrealised gains and their obligation to report directly to the Registrar in certain circumstances such as material defects in the accounting records, systems of control of the business and records of the credit union. Click here for the circular letter.

 

10 september 2009: NATIONAL ASSET MANAGEMENT AGENCY BILL 2009 PUBLISHED

On Thursday 10 September 2009, the National Asset Management Agency Bill 2009 was published.

Go to our Resources page at http://www.complianceireland.com/Resources.html#Investor_Protection for more details

 

4 September 2009: Settlement Agreement between the Financial Regulator and Irish Life & Permanent plc

The Financial Regulator has entered into a Settlement Agreement with effect from 3 September 2009 with Irish Life & Permanent plc in relation to breaches of regulatory reporting requirements.

 

The Financial Regulator has reasonable cause to suspect that Irish Life & Permanent plc’s internal control mechanisms failed to ensure the accuracy of certain regulatory reports in respect of its banking business provided to the Financial Regulator.

 

The Financial Regulator reprimanded Irish Life & Permanent plc and required it to pay a monetary penalty in the sum of €600,000.

 

This matter was detected by Irish Life and Permanent plc and promptly notified to the Financial Regulator on 3 March 2009.

 

Press reports stated that the lender over-stated the assets on its balance sheet in a report to the Financial Regulator due to an error. (While the monetary penalty of €600,000 might seem large for a self-detected and reported accounting error, it should be recognised that the inability of a bank to determine the level of its own assets and the inability of a regulator to rely on regulatory reporting provided by a large complex financial entity would both be causes for significant concern - Ed.)

 

The Financial Regulator confirms that Irish Life and Permanent plc fully co-operated with the Financial Regulator and has been open and transparent throughout the examination. The Financial Regulator further confirmed that Irish Life and Permanent plc took prompt and complete remedial action to fully rectify the breaches and that it considers the matter to now be closed.

 

Click here to download a copy of the Settlement Agreement.

 

25 August 2009: Financial Regulator publishes Discussion Paper on Variable Annuities

The Insurance Supervision Department of the Financial Regulator has published a Discussion Paper on re-examining suitable capital requirements for insurance and reinsurance undertakings with Variable Annuity business. The Discussion Paper notes that there have been a number of well publicised losses made by companies transacting this business in recent years (presumably this is a reference to the US market rather than Ireland - Ed.) and therefore it is necessary to examine reserving standards. The Financial Regulator has set out a suggested methodology as a starting point for discussion. The Financial Regulator is welcoming comments (particularly from professional bodies), including the proposal of alternative methodologies. Comments should be submitted by 31 October 2009.

 

Click here to download a copy of the Discussion Paper.

 

24 August 2009: Registrar of Credit Unions imposes 10% Regulatory Reserve Ratio on Credit Unions

 

The Registrar of Credit Unions (“the Registrar”) has published (Friday 21st August 2009) a requirement for credit unions to maintain a regulatory reserve ratio of 10%. The intention behind requiring adequate reserves is to protect members’ savings and maintain savers’ confidence. As stated in the requirements document "A strong overall reserves position enables credit unions to deal with future uncertainties and to act flexibly in adverse economic conditions. Lack of adequate reserves may threaten the financial soundness, stability and future of a credit union."

 

In accordance with the Credit Union Act 1997 (Section 85) Rules 2009, credit unions are required to maintain a Regulatory Reserve Ratio of not less than 10 per cent with effect from 30 September 2009. The requirements document states that if any credit union does not adhere to these conditions, the credit union will be in breach of the Rules and may be subject to regulatory action by the Registrar.

 

Where a credit union does not have adequate reserves to meet the Regulatory Reserve Ratio by 30 September 2009, the board of directors of the credit union must provide the Registrar with a plan for achieving compliance. The requirements document sets out a timetable by which this must be achieved. Inability to comply with the compliance timetable may lead to restrictions being placed on the business undertaken by a non-compliant credit union.

 

Difficulties in sustaining the required Regulatory Reserve Ratio may impact on a credit union's ability to pay a dividend. The Registrar also announced the intention to develop a risk-based approach to calculating the Regulatory Reserve Ratio for the financial year commencing 1 October 2010. Eligibility to adopt the risk-based approach will be subject to an approval process.

 

• Download here a copy of our Newsletter 6/2009 written in 'Questions & Answers' style containing more detail on the Regulatory Reserve Ratio requirements
• Download here a copy of Regulatory Reserve Ratio requirements.

 

19 August 2009: new quarter 3 & 4 2009 training dates announced

 

Our courses are accredited by Institute of Bankers (QFA, CPD Members (stockbrokers), CPD Member (LIA), LCOI and CeB) and Professional Standards Advisory Board-General Insurance/Insurance Institute of Ireland (QFA, LCOI, CIP and CFD Members). Solicitors and Accountants may claim CPD hours from their membership bodies as may others with CPD requirements. Formal and informal CPD hours vary depending upon your professional association’s rules. Please contact us (email@complianceireland.com) or your professional association if you have any queries on the amount of CPD hours that may be claimed for our courses. See http://www.complianceireland.com/publictraining.html for details of specific CPD credits.

 

The full training details located at http://www.complianceireland.com/publictraining.html. Download training programme here.

 

 

5 August 2009: Financial Regulator writes to insurance firms reminding them of Solvency II impact

 

The Financial Regulator has written to insurance firms reminding them of the impact Solvency II will have on their businesses:

• Introduction of more sophisticated economic risk-based solvency requirements.
• New rules to compel insurers to focus on identification, measurement and active management of risks.
• Requirement to conduct an Own Risk and Solvency Assessment on an annual basis.
• Additional information to be publically disclosed.

National supervisors will conduct a formal Supervisory Review Process to evaluate insurer's compliance with laws, regulations and administrative provisions relating to the Solvency II directive.

 

Although the framework directive is not expected to be formally published in the EU Official Journal until October 2009, and the directive will not take effect until October 2012, the Financial Regulator is keen that firms should commence planning for the implementation process now. The Financial Regulator has set out four key elements to successful implementation:

1. An appropriate governance framework be in place.
2. An accountable individual appointed at executive level with responsibility for overseeing implementation of Solvency II (The Financial Regulator advises that a specific board member should assume responsibility for Solvency II issues).
3. Performance of a gap analysis to identify any shortfalls relative to the Solvency II requirements.
4. Implementation plans should focus on all three pillars (capital requirements, supervisory activities and public disclosures) rather than focusing on potential capital releases under Pillar 1.

 

Finally, the Financial Regulator requires firms to inform it by end-August 2009 of the person responsible for Solvency II at the insurer and whether the insurer intends to utilise internal models.

 

Click here to download the letter.

 

28 July 2009: New anti-money laundering and counter-financing terrorism bill published

 

The Minister for Justice, Equality and Law Reform, Dermot Ahern T.D., has today (Wednesday 28 July 2009) finally published the long awaited Bill which will lead to law implementing the 3rd EU Anti-Money Laundering and Counter-Financing Directive today. The Bill, titled Criminal Justice (Money Laundering and Terrorist Financing) Bill 2009 is 85 pages long and comprises of 5 Parts and 2 Schedules.

 

In announcing the new Bill, Minister Ahern said: "In developing this legislation, I propose to consolidate Ireland’s existing anti money laundering and terrorist financing laws, which are primarily contained in the Criminal Justice Act 1994. I have therefore decided to repeal and re-enact these provisions in a single consolidated piece of legislation."

 

Compliance Ireland has uploaded both the Bill and the Explanatory Memorandum at http://www.complianceireland.com/Resources.html#AMLBILL with a link also from www.antimoneylaundering.ie for readers.

 

The direct links are:

• Criminal Justice (Money Laundering and Terrorist Financing) Bill 2009
• Explanatory Memorandum to the 2009 Bill

• Detailed Note issued by Minister accompanying the 2009 Bill
• Press Release issued by Minister

 

 

Compliance Ireland will write a series of articles on the new Bill and in addition to our usual AML/CFT training, we will be hosting seminars and will be involved with conferences on this very important topic in the coming weeks and months. In the interim, all senior managers, compliance officers and MLROs are recommended to download and read both the Bill and the Explanatory Memorandum.

 

If you have any questions, require advice, training or simply wish to contact us with your comments on the Bill (which we can incorporate into our comments and send to the Minister and TDs) please email these to us at email@complianceireland.com. Please note that the Oireachtas (Irish Parliament) adjourned on 15th July 2009 for a 9 week summer recess. This means that the new Bill will not be debated until sometime in September at the earliest.

 

Compliance Ireland understands that the drafting of the Guidance Notes will be resumed now that the Bill has been published. However those involved in this area should act now by reviewing and commenting upon the Bill to ensure that their comments are taken into account in the final format of the Act and Guidance Notes.

 

Read Newsletter 4 of 2009 for further details by clicking here.

Read Newsletter 8 of 2009 for an explanation of the Bill by clicking here.

Read Kevin O'Doherty's article on the implications of the Bill in the October 2009 edition of Accountancy Ireland by clicking here.

 

 

21 July 2009: IRISH FINANCIAL REGULATOR ISSUES ANNUAL REPORT FOR 2008

 

A copy of the Irish Financial Regulator's Annual Report is here. A copy of the accompanying press release is here. We will write a briefing note on the Annual Report in our August 2009 newsletter which will be available here

 

 

17 JULY 2009: IRISH FINANCIAL REGULATOR COMMENCES AUTHORISATION PROCESS FOR PAYMENT INSTITUTIONS UNDER ARTICLE 10 OF PAYMENT SERVICES DIRECTIVE

 

The Payment Services Directive (“PSD”) is to be transposed into national legislation by all EU (and EEA) Member States by 1 November 2009 at the latest. In Ireland, this will be achieved by 'The European Communities (Payment Services) Regulations 2009' (the “Regulations”) set to come into effect from 1 November 2009 and as of today currently being drafted.  The PSD will, inter alia, provide the regulatory framework for a single payments market in the EU, so that electronic payments within the EU can be made as simply, cheaply and safely as domestic payments within a Member State.  The PSD introduces a new category of regulated firm, the Payment Institution. 

 

The Irish Financial Regulator will be responsible for the authorisation of Payment Institutions.  Relevant application forms, and guidance note, are available on the Financial Regulator’s website here - http://www.financialregulator.ie/industry-sectors/payment-institutions/Pages/default.aspx. 

 

For assistance on understanding, advice or making an application as a Payment Institution please contact Compliance Ireland (Peter Oakes or Kevin O'Doherty) on +353 1 425 5962 or email@complianceireland.com who will be happy to assist . Existing money transmitters (regulated under Part V, Central Bank Act 1997) may also need advice if they fall under the new Payment Institution regulatory regime, especially including areas of initial capital and own funds requirements.

 

28 JUNE 2009: irish financial regulator Confirms 'Fit & Proper' Investigation into ANGLO IRISH BANK senior management with impaired loans

 

John Ihle of the Sunday Tribune reports (Sunday 28 June 2009) that the fitness & probity of senior management with impaired loans is being investigated by the Financial regulator. Click here for more information.

 

 

23 JUNE 2009: iRELAND ADDS CAYMAN ISLANDS TO LIST OF TAX INFORMATION SHARING COUNTRIES

 

Ireland has signed a 4th agreement on the exchange of tax information, this time with the Cayman Islands. Revenue Commissioners (Ireland's Tax Office) will be able to ask for information relevant to an Irish tax investigation directly from the authorities in the Cayman Islands. This information includes bank account information and beneficial ownership information for companies and other entities set up in the Cayman Islands. Ireland has already signed similar tax information exchange agreements (TIEA) with the Isle of Man, Jersey and Guernsey. The Department of Finance expects to sign a TIEA with Gibraltar shortly. Commenting on the TIEA with the Cayman Islands the Department of Finance said ' The signing today of this agreement represents a new chapter in relations between Ireland and the Cayman Islands.' (Editor: Peter Oakes - perhaps we may even see the Cayman Islands classified, by the Minister for Justice, as 'prescribed country' for anti-money laundering purposes under section 32 of the Criminal Justice Act 1994? Such a move, long overdue, will certainly be welcomed by Ireland's offshore funds industry)

 

Separately, Ireland has 50 Double Taxation Agreements (DTAs) in place with other countries and is in negotiations with a number of countries which it hopes will expand the DTA network to 60 countries by the end of 2009. Click here

 

 

23 June 2009: Bank Guarantee Scheme LIKELY TO BE Extended

Draft legislation (Financial Measures (Miscellaneous Provisions) Bill) to extend of the bank guarantee scheme beyond its initial two-year period (i.e. currently September 2010) has passed all stages in the Dáil. The Bill also allows the Minister for Finance to extend the bank guarantee scheme by Ministerial Order. The Bill now goes to the Seanad.

 

Read more in our Newsletter 2/2009 - issued 18 June 2009 - click here, regarding the Financial Measures (Miscellaneous Provisions) Bill.

 

18 JUNE 2009 - SPECIAL EDITION NEWSLETTER 3/2009 (JUNE 2009)

Read Newsletter in Adobe - click here

• Special Edition Newsletter (3/2009) issued on 18 June details the annoucement by the Irish Minister of Finance of a new single financial regulatory structure.  The new body will be called the Central Bank of Ireland Commission. The Newsletter is written in a straight-forward Question & Answer style. Read Newsletter in Adobe - click here

 

18 June 2009: Newsletter 2/2009 (JUNE 2009) issued

Read Newsletter in Adobe - click here

 

Covering proposed new regulatory structures in Ireland, Europe and the US, Financial Crime (including money laundering) cases in Ireland & the UK, Data Protection cases in Ireland and Collective Investment Schemes. Read Newsletter in Adobe - click here

 

April 2009: Financial Regulator reminds MiFID firms of Pillar 3 and ICAAP obligations

 

The Financial Regulator is currently writing to MiFID firms reminding them of their obligations to develop and maintain an Internal Capital Adequacy Assessment Process (“ICAAP”) document. The Financial Regulator reminds that these documents are to be kept up to date, expecting them to be reviewed quarterly by the firm in current market conditions. The Financial Regulator has previously stated that it intends to inspect firms’ ICAAP documents in 2009. But this is an area also subject to ongoing monitoring – The Financial Regulator is reminding firms that they are also required to include ICAAP results as part of their quarterly Capital Requirements filings.

 

Compliance Ireland has extensive experience of assisting firms draft, update and complete their ICAAP processes and documents. We have worked with both non-complex firms, such as Asset Managers, and complex firms, such as CFD trading firms.

 

We can assist you to risk assess your business, both in terms of investment operations and general corporate exposures. We can help you consider appropriate stress testing and then assess capital requirements to set aside against those risks. We can help you draft or revise your ICAAP document, or simply review the document already created in-house.

 

The Financial Regulator has set a deadline of 30 June 2009 for publication by investment firms of their ‘Pillar 3’ disclosures. Many firms may yet need to fully focus on this as an issue. Extensive disclosure of your firm’s internal capital allocations and risk management objectives may be required, possibly for separate display on your website. Compliance Ireland is happy to assist firms draft their Pillar 3 disclosure. We can help you satisfy the legal obligations without making unnecessary, confidential or proprietary disclosures that could have competitive consequences for your business,

 

24 April 2009: Convicted Money-Launderer Ted cunningham sentenced to 10 years in jail.

Having previously been convicted of possessing more than £3m (€3.24m) from the infamous IRA heist and running an elaborate dirty money racket, financial advisor Ted Cunningham was sentenced to jail for 10 years.

The 60-year-old, from Farran in Co Cork, was also found guilty at Cork Circuit Criminal Court of another nine counts linked to the stolen cash which moved from Belfast to Cork.

 

“He stored money, he gave money to others to store, bought cars, used money as security, and obtained euro value for the northern sterling,” said the judge. “There’s no doubt there was premeditation and planning involved in the offences."

“He persisted to the end with a concocted alibi that Bulgarians were going to buy a pit.”

His son, Timothy Cunningham Junior, was given a three-year suspended sentence after he admitted knowing money came from the December 2004 robbery at the Northern Bank cash centre in Belfast.

8 April 2009: Settlement Agreement with Mr John Gurhy t/a Gurhy Properties & Financial Services, The Debt Doctor.

The Financial Regulator has entered into a settlement agreement with Mr John Gurhy t/a Gurhy Properties & Financial Services, The Debt Doctor over a suspected failure to to comply with certain provisions of the Consumer Protection Code and the Consumer Credit Act, 1995, as amended.

The Financial Regulator suspects that Mr John Gurhy t/a Gurhy Properties & Financial Services, The Debt Doctor facilitated unauthorised business, by allowing unauthorised persons to transact mortgage intermediation business through his firm.

 

Mr John Gurhy agreed to a disqualification from being a person concerned in the management of a regulated financial service provider for a period of 2 years commencing from 8 April 2009 and has sought revocation of his authorisation as a mortgage intermediary. Click here to read the full text of the settlement agreement.

 

3 March 2009: Financial Regulator publishes report into Director's Loans at Credit institutions covered by the Government Guarantee Scheme

The Financial Regulator today (3 March 2009) published its report into the examination of loans to directors and connected parties at six of the credit institutions covered by the Government Guarantee Scheme for the period December 2005 to December 2008. This review followed the discovery of the removal and reduction at year-end of a director loan at Anglo Irish Bank. It was aimed at discovering if any of the covered institutions were reducing loans at year-end to avoid disclosure in their financial statements.

 

The review covered the following institutions: Allied Irish Banks, Bank of Ireland, EBS Building Society, Irish Life and Permanent plc, Irish Nationwide Building Society and Postbank Ireland Limited.  The report does not cover Anglo Irish Bank which is the subject of a separate, on-going investigation by the Financial Regulator.

 

Following the review, the Financial Regulator has issued new requirements in relation to the disclosure of director's loans and has written to all credit institutions regarding the matters raised during the examination. The Regulator is following up and will take appropriate action on issues raised by the review and has also informed other relevant authorities of the issues arising from the review that are of relevance to them.

 

In a move related to this enquiry, the Financial Regulator has recently requested that the Institute of Chartered Accountants remind its members in practice to pay particular attention to auditing standards and guidance relating to year end transactions and in particular, have regard to the requirements of ISA 520 (Analytical Procedures), ISA 560 (Subsequent Events) and Practice Note 19(I) on the audit of banks in the Republic of Ireland.

 

The findings of the examination are:

• No evidence was found in the six covered institutions of the removal or reduction of loans at the year-end to avoid disclosure in the financial statements.
• None of their directors' loans was impaired, in arrears or otherwise non-performing for the period 31 December 2005 to 31 December 2008. 
• All of the directors loans reviewed were in compliance with the Financial Regulator's limit of 2% of own funds
• There were some inaccuracies in disclosures in financial statements in most of the institutions examined, because of weaknesses in the procedures and controls for the preparation of the disclosures of directors' loans. These included loans to directors or to connected parties not identified and therefore not disclosed, incorrect balances on disclosed loans and loans included in disclosures that were not required to be disclosed.
• The largest non-disclosure of a loan to director amounted to EUR148,214. The largest non disclosed loan to a connected party amounted to EUR11.3 million.
• Some 10% of disclosures signed by directors were incorrect. 
• One institution had omitted two small loans of less than EUR16,000 from the data submitted to the Financial Regulator in response to its letter of 24 December 2008. 
• No evidence was found of loans other than loans that are available to all staff members (e.g. staff mortgages) that were issued with preferential terms.

 

Click here to download the full report.

 

2 March 2009: New registration and financial crime requirements for gaming community

The Irish Government has announced that it will regulate and licence casino clubs as a first step towards overhauling Ireland’s gambling legislation.  For more go to our Gaming and Betting Industry webpage (http://www.complianceireland.com/Casinos.html)

 

28 february 2009: prime minister outlines new format of irish regulator

Speaking at his political party's 72nd annual gathering (known in Ireland as the Ard-Fheis), the Taoiseach (i.e. Irish Prime Minister) stated that he will create a new Central Banking Commission (CBC). This will incorporate both the responsibilities of the Central Bank and the supervision and regulatory functions of the Financial Regulator. This will build on best international practice similar to the Canadian model (Office of the Superintendent of Financial Institutions). Mr Cowen says that the new CBC will provide a seamless powerful organisation with independent responsibility, with new powers for ensuring the financial health, stability and supervision of the banking and financial sector.

 

The CBC will be headed by a new Head of Banking Regulation with an international reputation.

 

A new Financial Services Consumer Agency will be created by merging the existing consumer directorate of the Financial Regulator (currently headed by Mary O'Dea) and the Office of the Financial Services Ombudsman (currently headed by Joe Meade).

 

There will be radical reform of the system and methods of financial supervision and regulation. There will be caps on salaries of Bank Chief Executives receiving government aid.

 

The requirements on banks to support small businesses and enterprise lending and to assist people with mortgage repayment difficulties will be enforced.

 

The overall effect of this initiative by the government will be to
- Underpin confidence in our financial system
- To get credit flowing again
- To Enforce more responsible and transparent lending policies
- And ensure a financial sector that acts in the interest of the customer rather than short term gain.

 

Mr Cowen says that the above initiative will mark an end to a sorry chapter in Irish banking history.

 

 

25 February 2009: Irish Financial Regulator calls in the Gardaí to advance investigation into affairs at Anglo Irish Bank

 

The news for Anglo Irish Bank gets worse as each day goes by.  RTE news this evening (25/02/2009) reports that a spokesperson for the Financial Regulator has confirmed that the regulator has referred a number of issues surrounding Anglo Irish Bank to Gardaí (Irish Police Service).

 

The referral of the issues comes on foot of numerous investigations by the regulator into Anglo.  The regulator’s spokesperson confirmed that it had concluded that 'certain matters' were of such a serious nature that it was appropriate to refer them to Gardaí.

 

24 February 2009: Gardaí and ODCE raid Ango Irish Bank

Gardaí (Irish Police Service) acting under a court order pursuant to section 20 of the Companies Act 1990 commenced searches today of Anglo Irish Bank in Dublin.  This particular investigation is led by the Director of Corporate Enforcement and is separate to those being conducted by the Financial Regulator.  Section 20 allows the sharing of information between regulatory authorities.  The Director and the Financial Regulator have also recently signed new understandings on the sharing of information.

 

Although today’s searches are conducted under company law, nothing prevents the information retrieved from being used for other criminal law investigations such as market abuse and fraud. RTE news reported that the search teams entered the bank's offices just after 9.00a.m on 24 February and involved the Garda Bureau of Fraud Investigation unit.

 

Video - Peter Oakes, Director, Compliance Ireland joins the panel of news programme RTE Prime Time, with Richard Curran, Deputy Editor Sunday Business Post, Richard Murphy, Tax Research UK, chaired by RTE’s Mark Little to discuss the state of international regulation in the Irish banking sector. (if video does not open go to RTE's website at http://www.rte.ie/news/primetime)

 

21 February 2009: ireland's international credibility in downward spiral and exit of capital & jobs

Letter from Peter Oakes, Compliance Ireland to Irish Times 18 January 2006 - enforcement action necessary to prevent drop in confidence in Ireland and exit of capital. This letter, written more than 3 years ago, followed a series of articles written by Justin O'Brien in the Irish Times focusing of the state of regulation and business ethics following separate Australian, UK and US enforcement action regarding a sham reinsurance contract written in Ireland. One of Professor O'Brien's latest articles in this year's Irish Times appears here. Justin O'Brien is professor of corporate governance at the Centre for Applied Philosophy and Public Ethics in Canberra (Australia) and author of Engineering a Financial Bloodbath.

 

A number of international influential publications, such as the Financial Times (FT) and Wall Street Journal (WSJ), seen as bibles by the investing community, are heavily criticising Ireland's ethical culture. As a society we must respond by doing everything we can to either correct these perceptions or accept the validity of some, or all, of their points and then move swiftly to getting our house in order. If we do not, the only people we will have to blame is ourselves as capital and jobs leave Ireland for other destinations.

 

There are plenty of other EU/EEA countries, such as Malta, Luxembourg, Poland and the Czech Republic (to name but a few) actively seeking to expand into areas which Ireland, up until now, has a commanding lead e.g. wholesale banking, reinsurance, mutual funds and structured SPVs. Those that have capital to invest can choose any EU country for their financial/insurance services ventures and avail of the EU passport to sell their products across all EU member states and further afield, If Ireland truly wants this business it will have to focus on, not just its cost base, but more importantly its reputation abroad to stem a devastating outflow of capital and jobs. See our recent newsletter for more.

 

The jokes doing the rounds at the moment including: (i) Ireland and Iceland being only one letter and six month apart; and (ii) the schoolboy who tells the show-and-tell class that his daddy is a drug dealer because he is too embarrassed to say that daddy is a bank director, are excruciating. See the FT article dated 16/02/2009 for the FT's witty remark that it is now 'time, then, for Ireland’s cosy coterie of bankers and politicians to resume discussion of their golf handicaps in the club bars'.

 

Below are links to various articles appearing in the FT and WSJ (these are repeated for educational/research purposes and copyright belong to the author/publication).

 

FT - Litany of loans, guarantees and resignations 21/02/2009

• http://www.ft.com/cms/s/0/d2c23a5c-ffb8-11dd-b3f8-000077b07658.html or click here

 

FT – Anglo in Share placing row 20/02/2009

• http://www.ft.com/cms/s/0/c5dbc6c2-ffb9-11dd-b3f8-000077b07658.html or click here

 

WSJ- From Pride of Ireland to National Scandal 20/02/2009

• http://online.wsj.com/article/SB123508198230226787.html

 

FT – Irish banks 16/02/2009

• http://www.ft.com/cms/s/1/48326978-e3ae-11dd-8274-0000779fd2ac.html or click here

 

WSJ - Irish Life's CEO and Two Others Resign 14/02/2009

• http://online.wsj.com/article/SB123452688339082461.html

 

FT - Irish Bank Bailout 13/02/2009

• http://www.ft.com/cms/s/1/69f24ea2-f970-11dd-90c1-000077b07658.html or click here

 

 

20 February 2009: Anglo Irish Bank saga continues - report released

We have updated our Investor Protection and Bank Guarantee Scheme section. Click here to read the latest on:

• Project Atlas - Anglo Irish Bank Corporation plc (Summary Report Extracts)
• Minister of Finance Statement
• Law nationalising Anglo Irish Bank Corporation plc

 

18 February 2009: Newsletter 1/2009 (february 2009) issued

To read the newsletter click here

 

14 February 2009: Financial Regulator issues statutory Mortgage Arrears Code and Business Lending Code

The Financial Regulator today (13 February 2009) published its Code of Conduct on Mortgage Arrears and its Code of Conduct (effective 27 February 2009) for Business Lending to Small and Medium Enterprises, (effective 13 March 2009) in line with the Government’s announcement on recapitalisation arrangements.  The Financial Regulator says that it worked closely with the Department of Finance and other relevant stakeholders in developing these Codes.  A breach of either Code is a breach of Irish law.

 

 

14 February 2009: Financial Regulator clashes with Chairman and Board of Irish Life and Permanent (IL&P) and announces investigation into €7billion loan fiasco.

 

Links to information on Irish Financial Regulator's, IL&P's and Minister for Finance's websites:

• 13/02/2009 - statement by Financial Regulator rejecting claims that it encourage 'circular transactions' and announcing investigation into IL&P and another investigation into Anglo Irish Bank - click here
• 13/02/2009 - statement by IL&P on why it engaged in transactions following meeting with Financial Regulator - click here
• 13/02/2009 - statement by IL&P on resignation of Chief Executive, Denis Casey - click here
• 13/02/2009 - statement by Minister of Finance on Mr Casey's resignation as CEO - click here
• 13/02/2009 - statement by IL&P on resignation of Group Finance Director Mr Peter Fitzgerald and Head of Group Treasury, David Gantly - click here
• 11/02/2009 - statement by IL&P on 'exceptional support' transactions with Anglo Irish Bank - click here

 

 

The Board of the Financial Regulator has yesterday, 13 February 2009, rejected any suggestion that it encouraged the type of circular transactions that have been referred to in media reports and statements concerning financial transactions between Anglo Irish Bank (Anglo) and Irish Life & Permanent and certain of its subsidiaries (IL&P). The regulator added that ‘circular transactions’, unlike normal inter-bank lending, do not provide liquidity to financial institutions and are completely unacceptable.

 

What were the transactions in question?

The transactions, details of which are posted on IL&P’s website, at the heart of this matter and the investigation are:

 

March 2008:  On 31 March 2009 IL&P , through its subsidiary Irish Life Assurance (ILA), deposited €750

million overnight on receipt of €1 billion cash (from Anglo) into Permanent TSB being collateral in respect of the deposit.

 

September 2008:

• 26 - 29 September: IL&P, through its subsidiary ILA, deposited €3.45 billion with Anglo by 5 separate deposits between 26th September to the 29th September.  Anglo places €3.45 billion in cash with Permanent TSB.  Again this cash deposit by Anglo is collateral in respect of the same value deposits made by IL&P {NB these matured 2nd and 3rd October 2009].
• 29 September: IL&P refuses to advance more money to Anglo in response to requests for further advances.  IL&P state that the refusal was due to Anglo having in sufficient collateral to lodge with IL&P.
• 30 September: IL&P, through its subsidiary ILA, agreed to place a total of €4 billion on deposit overnight with Anglo.  This was done so on the basis the money was fully protected by the introduction of the Government Guarantee Scheme.  Notwithstanding the CGS IL&P required, I return, €4 billion being lodged into Permanent TSB which as collateral.  These transactions matured on the 1st October.

 

Separately IL&Ps engaged in interbank transactions with many institutions including the ECB.  These involved the pledging of eligible mortgage assets in exchange for cash with the transactions being accounted for as interbank deposits.  Anglo’s participation in these

transactions amounted to €3.33 billion out of a total outstanding (as at 30 June) of €7.73 billion.  By 31 December IL&P state that they had no material collateralised transactions with Anglo.

It is the transactions with Anglo which have been coined as ‘circular transactions’.

 

Postscript:  The weekend papers (14-15 February) carried further stories and details relating to the circular transactions.  See our comments in the Sunday Tribune 15 February by clicking here

 

Investigations

The regulator confirmed that its investigating officers are on site at both Anglo Irish and IL&P.  Its officers in have been instructed to complete their work as a matter of extreme urgency.

 

The regulator’s statement appears quite defensive. This obviously means that (i) it is very concerned that it is being misrepresented in some quarters; and (ii) wants banks to ‘come clean’ if they too, putting it politely, misunderstood the regulator’s expectations.  The regulator’s statement confirms that institutions should continue to use normal inter-bank funding arrangements but that it did not at any time focus on other types of deposit arrangements, such as those engaged in by Anglo and IL&P.  The regulator’s opinion is that the Anglo /IL&P transactions were a very different type of transaction to a normal inter-bank arrangement and by their nature had no beneficial effect in terms of providing liquidity. The regulator’s statement of 13 February goes onto say “Financial institutions would have been fully aware that any arrangements made between themselves would have to be in full compliance with all necessary regulations and that all relevant disclosures would have to be made as appropriate”.

 

The regulator confirmed that it is working with the Office of the Director of Corporate Enforcement and will take all actions necessary and involve other authorities where appropriate.  This time the Financial Regulator has not jumped the gun, as it appeared to do so according to a media reports (including the Irish Times) during its investigation of the Anglo directors’ loans scandal when former CEO, Mr Patrick Neary, announced at a very early stage his office found no evidence of apparent illegality.  However today, 14 February 2009, the Irish Independent reports that Paul Appleby, Office of the Director of Corporate Enforcement informed the newspaper that he is taking a "good hard look" at what has gone on in Anglo and that his options include making an application to appoint a high court inspector to Anglo Irish Bank and/or to disqualify its directors. Calling in the Garda Bureau of Fraud Investigations, with the power to bring criminal charges, is also another option once the investigation is completed.

 

The Financial Regulator’s statement of yesterday and its investigation follows IL&P’s placing of funds with Anglo.  IL&P stated, on 11 February 2009, that these deposits provided ‘exceptional support’ to Anglo during September 2008 and in particular on 30 September 2008 following the introduction of the Government Guarantee Scheme. In a separate press release, 13 February 2009, IL&P appears to point the finger at the Financial Regulator for any confusion; saying that the regulator had in fact communicated in person to the IL&P’s non executive directors in May 2008 that the Central Bank and regulator’s policy objective was for Irish financial institutions to ‘support each other’ in the face of the unprecedented destabilisation of the Irish financial system arising from the international credit crisis.  One would hope that there could not be too much confusion between the IL&P and the Financial Regulator over whatever are the standards of acceptable practice given that a former chief executive of the Financial Regulator, Mr Liam O’Reilly, is a non executive director of IL&P (appointed September 2008).  Separately, Mr O’Reilly is Chairman of the Chartered Accountants Regulatory Board (CARB) and a director of Merrill Lynch International Bank Ltd .  CARB, itself a regulatory body, is examining the circumstances around the issue of inappropriate directors loans at Anglo and the role played by any members of the Institute of Chartered Accountants in Ireland.

 

As the regulator’s investigation progresses, we shall see how strongly the Board of IL&P adopts its own internal business code - especially Principle 8 - that it “will deal with regulatory authorities in an open and co-operative way” and Principle 4 - “will view compliance as an imperative for the business and central to the decision-making process”.   You can read IL&P’s Code of Business Conduct here. 

 

IL&P’s Chief Executive Mr Denis Casey, Group Finance Director Mr Peter Fitzgerald and Head of Group Treasury, David Gantly stepped down this week in the face of the growing controversy and public concern at the ‘circular transactions’.  All persons, including Mr Casey enjoyed the full support of the Board.  It is important and fair to note that there is no allegation that Messrs Casey, Fitzgerald or Gantly personally behaved in an inappropriate way.  Mr Casey’s resignation followed the Minister of Finance’s (Brian Lenihan) intervention after the Board of IL&P refused to accept Mr Casey’s resignation.

 

No love lost between Anglo Irish Bank and IL&P - even on Valentine’s Day!

Perhaps it is apt that today (14 February 2009) being Valentine’s Day, according to the Irish Times, IL&P steadfastly confirms that its ‘exceptional support’ transactions were loans backed by “collateral” deposits from Anglo Irish. However Anglo states that the transactions were “inter-bank placements” and “not cash collateral for deposits” from ILP.  Hopefully the two parties can reconcile this significant difference of fact otherwise at least one of them may be left with holding the parcel when the music stops.  One would naturally expect that investigations will cover whether there was a breach of financial services regulations and company accounting laws.

 

 

11 February 2009: Patrick Neary, former Financial Regulator to receive €630,000 payment

The Sunday Business Post and The Independent all carry the story of Green Party chairman and Senator Dan Boyle calling as “staggeringly generous” and unacceptable a €630,000 euro payment for the former Financial Regulator Mr Patrick Neary. According to media reports Mr Neary was given a special €202,000 payoff – equivalent to eights months salary – as well as a retirement lump sum of €428,000. He is also entitled to an annual pension of €142,670.

 

Commentators differ over the reasoning of Mr Neary’s departure.  Some such as Senator Boyle say Mr Neary’s departure should not be viewed as a resignation but rather a “removal from office through demonstrated incompetence” [Ed - a bit harsh].  Another view is that Mr Neary was chosen as a scapegoat because his departure would be the least controversial and would have no consequential impact upon the banking industry [Ed - sounds plausible].  The conspiracy theorists are also out there - including some highly ranked Irish financial executives - claiming that a campaign was waged within government departments and agencies aimed at discredited Mr Neary following his perceived poor performance before both the media and government committees, as well as management style [Ed - makes for interesting speculation but let’s not read too much into this one!].

In response to questions, Finance Minister Brian Lenihan said Mr Neary’s settlement terms were agreed upon receipt of independent legal advice.  Mr Lenihan was less than supportive of Mr Neary, issuing a short terse statement without thanking him for his service, when the former chief executive announced his early retirement in January 2009.  Even less supportive was Energy Minister Eamon Ryan who said that he hoped the retirement of the Financial Regulator will strengthen public confidence in the banking system.

[Editor – Notwithstanding that many people are suffering out there (loosing jobs, struggling with the mortgage etc) who would have thought that compliance and governance would ever be this interesting!]

 

Merrill Lynch was recently taken-over by Bank of America and its US operations were heavily criticised by BoA executives for governance and risk failures.

 

 

 

9 January 2009 and on-going: chief executive, financial regulator steps down unexpectedly / investigation into directors' loans continues / anglo irish bank nationalised

 

Patrick Neary, Chief Executive of Financial Regulator steps down unexpectedly. Mr Neary will leave the regulator at the end of January 2009. His earlier than expected departure (early retirement) follows publication of inquiry into Financial Regulator's knowledge of information relating to concealment of loans to former Anglo Irish Bank Chairman. The loans to Mr Sean Fitzpatrick, former Anglo Chairman were switched from Anglo to Irish Nationwide Building Society shortly before Anglo's year end to keep loan details out of Anglo's annual report. The loans were then switched back to Anglo. This exercise continued over a period of up to 8 years and also involved, on one occasion, another (now former) director of Anglo

 

The scandal at Anglo Irish Bank has led to the departure of at least 8 executive and non-executive directors from the board of Anglo Irish including its Chairman, Sean Fitzpatrick and Chief Executive, David Drumm.

 

Rather than repeat the information relating to what is being labelled the 'Anglo Irish Scandal' readers might be interested in reading the following links:

 

Links to information on Irish Financial Regulator's and Minister of Finance's website:

• 27/01/2009 - Opening Statement by Chairman - Joint Oireachtas Committee on Finance and the Public Service - click here
• 15/01/2009 - Minister of Finance statement on nationalisation of Anglo Irish Bank - click here
• 15/01/2009 - Information note by Financial Regulator on nationalisation of Anglo Irish Bank - click here
• 13/01/2009 - Opening Statement by Chairman - Joint Oireachtas Committee on Economic Regulatory Affairs - click here
• 09/01/2009 - Statement by Board of Financial Regulator on retirement of Chief Executive - click here
• 09/01/2009 - Statement by CEO of Financial Regulator on his retirement - click here
• 09/01/2009 - Statement by Board of Financial Regulator in Directors’ loans at Anglo Irish Bank - click here

 

27 January 2009: Litigation begins and IFSRA publishes information RELEASE on Madoff Collapse

 

On 7 January, the Financial Regulator issued an information release quantifying the exposure of Irish funds to the collapse of Bernard L. Madoff Investment Securities LLC as a result of an alleged fraud. This was part of an EU-wide initiative, co-ordinated by the Committee of European Securities Regulators (“CESR”) with Irish and Luxembourg-domiciled UCITS funds found to have been affected.

 

The Financial Regulator stated that two Irish-domiciled funds, one UCITS and one non-UCITS, had reported exposures to Madoff arising from the appointment of Madoff as sub-custodian to the assets of the funds by the Irish trustee. Both funds suspended dealings with investors. A small number of other funds reported to the Financial Regulator that they have indirect exposures arising from investment by the funds in other collective investment funds with exposure to Madoff. Three of these have suspended dealings with investors, one UCITS and two non-UCITS. The Financial Regulator noted that decisions to suspend dealings had been taken by the Boards of the funds and notified to all investors.

 

In Luxembourg, the CSSF issued a press release stating that UBS (Luxembourg) S.A. and the CSSF met on February 5, 2009 to discuss the circumstances of LUXALPHA SICAV – American Selection and Luxembourg Investment Fund - US Equity Plus, two Luxembourg funds which have been hit by the Madoff scandal. Subsequent to the meeting the CSSF published a further press release stating that “the CSSF has transmitted the results of its enquiry into the binding responsibilities for the credit institution UBS (Luxembourg) S.A. in its capacity as depositary of the investment fund LUXALPHA SICAV, pursuant to the legal and regulatory texts. The CSSF requested the bank to take a stand in writing.”

 

This was followed by a further press release from the CSSF on 11 February regarding another affected Luxembourg fund – Herald (Lux) SICAV. It stated that “In the context of allocating responsibilities to the various parties in relation to Herald (Lux) and its depositary bank HSBC Securities Services (Luxembourg) S.A. and in order to safeguard at best the investors' rights, the CSSF took two decisions on 10 February 2009: first the withdrawal from the official list and second the application for the judicial winding-up of the sicav Herald (Lux).”

 

In its own information release, the Financial Regulator noted that the provisions of EU and Irish law set down specific obligations in relation to the safe keeping of the assets of a UCITS and are similarly applicable in the case of non-UCITS. It was highlighted that the ability of a fund’s trustee to appoint sub-custodians did not absolve the trustee of responsibility for the custody of the funds’ assets.

 

[Editor Comment: In the relevant Notices governing the duties of trustees, the Financial Regulator sets out a number of actions it feels that a trustee can undertake in order for the trustee to discharge its responsibility under the Regulations for the actions of its sub-custodians. The Financial Regulator did not reference these in its information release.]

 

At a pan-European regulatory level, CESR noted that it is organising regular contacts between its members (the various EU securities regulators) to establish the extent of potential losses of European investors and to coordinate the members’ actions. CESR is also engaging in dialogue with the SEC in order to co-ordinate European regulatory efforts. It was stated that concerns have been raised in respect of custody and sub-custody arrangements. For this reason, CESR stated it intends to focus its efforts on establishing how the various rules on depositary obligations have been implemented in Member States and will seek to establish if further clarity is needed on an EU-wide basis.

 

On 27 January, Motions for Entry to Commercial List and Motions for Interlocutory Injunction were made in the Commercial Court by Thema International Fund plc and separately by AA (Alternative Advantage) plc against HSBC Security Services (Ireland) Ltd and sister company HSBC Institutional Trust Services (Ireland) Ltd seeking to have monies returned to them, signalling the commencement of legal initiatives by parties affected by the Madoff collapse.

 

These funds have been joined more recently by Fortis Prime Fund Solutions Custodial Services (Ireland) Ltd making a separate, unrelated claim against the first of these HSBC entities, again related to the Madoff collapse.

 

 

15 January 2009: Irish court commences hearing into allegations that father and son laundered some of the proceeds of the £26.5m (€29.4m) Northern Bank robbery

 

On 14 January 2009, Timothy “Ted” Cunningham (60) and Timothy John Cunningham (33) pleaded not guilty to a total of 24 charges of money laundering relating to sums in excess of £3m. The father and son have denied laundering some of the proceeds of the £26.5m (€29.4m) Northern Bank robbery.

 

The Cork Circuit Criminal Court was told by the State Prosecutor Tom O'Connell, SC that Ted Cunningham operated as a money lender with his Corkbased business, Chesterton Finance. [Editor - some regulated firms held appointments from Chesterton Finance. Chesterton Finance though itself not authorised to provide regulated services is a designated body for the purposes of the 1994 Criminal Justice Act, 1994]

 

The State Prosecutor told Judge Cornelius Murphy and the jury that: the case could last up to 12 weeks; jury members will need to be available until Easter; and 250 witnesses will be called.

 

Compliance Ireland will follow this story closely.  

 

 

 

4 December 2008 - UK court fines solicitor & MLRO

On 4 December 2008 , a United Kingdom solicitor and money laundering reporting officer was fined £5,000 at Isleworth Crown Court for entering into an arrangement which facilitated the laundering of money.

The solicitor had transferred €14,000 into an Italian bank account for a client only days after receiving a court order outlining a number of offences, including carousel fraud, to which his client was about to plead guilty. The information included in the court order was important evidence in establishing whether the solicitor knew or suspected that the funds were criminal property.

 

Jonathan Krestin (60), the managing partner at Butcher Burns, a commercial and property firm of solicitors, was yesterday fined £5,000 on one count of money-laundering at Isleworth Crown Court. He was convicted on 19 November, after a two and a half week re-trial, of using the firm's client account to launder money belonging to Michel Namer, a French national and convicted fraudster. An investigation by HM Revenue and Customs showed that Krestin transferred 14,000 Euro from Namer to an Italian account of Namer's mistress and former lap dancer, Dzindzer Jeles, knowing or suspecting the monies to be criminal property. He was found not guilty in relation to three other counts.

 

The sum transferred was part of the proceeds of a 35,000,000 Euro Missing Trader Intra Community Fraud orchestrated by Michel Namer. The 14,000 Euro transfer was made just days after Krestin had been served with a court order cataloguing the criminal offences of which Michel Namer was suspected of and in relation to which he was about to plead guilty.

 

Namer was introduced to Krestin by a qualified tax advisor, Neil Macpherson. Macpherson was convicted at the first trial and sentenced to 3 years' imprisonment in June 2008. That jury could not agree on verdicts in relation to Krestin and so a re-trial followed. Click here to read more

 

28 november 2008 - HIBERNIAN DIRECT LIMITED: REPRIMANDED, MONETARY PENALTY €45,000 AND REFUNDS OF €16,000 TO CUSTOMERS

 

On Friday 28 November 2008, the Financial Regulator published a Settlement Agreement with Hibernian Direct Limited for breaches of General Principles 4 and 6 and Common Rule 5 in Chapter 2 of the Consumer Protection Code. The sanction agreed by Hibernian includes a reprimand, a monetary penalty of €45,000 and refunds to customers in excess of €16,608. Just last month (October 2008) Quinn Insurance Limited and Mr. Sean Quinn senior were collectively penalised €3,450,000 by the Financial Regulator. Other significant sanctions imposed this year include €80,000 levied on Fexco Stockbroking Limited (March 2008) and €50,000 levied on Irish Nationwide Building Society (October 2008).

 

Click here for our Briefing Note on the Hibernian decision. Click here for details of the Settlement Agreement in the matter of Hibernian and other Enforcement cases.

 

30 october 2008 - Warning: Credit Union members being targeted by sinister phishing scam: attempt to dupe members to hand over ATM/debit card details

 

Today at 13:20 we received a phishing email.  The phishing email is headed ‘Security Alert’.  It falsely states that it is from the Irish League of Credit Unions.  The email attempts to scare the recipient into believing that their ATM / debit card details have been compromised and requires them to reconfirm their financial details at the fraudster’s website (http://irldsxxcu.com/irlnd/index.htm) which copies the look and feel of the ILCU’s website.

 

Click here to see how the scam works.

 

29 october 2008 - UK FSA FINES FIRM & MLRO FOR INADEQuaTE AML SYSTEMS AND CONTROLS

 

On 29 October 2008, the UK FSA fined both Sindicatum Holdings Limited (SHL) £49,000 (Euro 62,450 / USD 80,650 / AUD 118,400) and its money laundering reporting officer (MLRO), Michael Wheelhouse, £17,500 (Euro 22,300 / USD 28800/ AUD 42,300) for not having adequate anti-money laundering systems and controls in place for verifying and recording clients’ identities. This is the first time the FSA has fined a money laundering reporting officer.

 

The FSA found a number of failings including:

• the firm failed to implement adequate procedures for verifying the identity of its clients;
• it failed to verify adequately the identity of a significant number of its clients;
• it failed to keep adequate records with regard to the verification of the identity of its clients; and
• Mr Wheelhouse failed to take reasonable steps to implement adequate procedures for controlling money laundering risk.

 

Click here to read more and visit our FSA Enforcement section

 

24 October 2008 - FInancial Regulator Levies record fine on Quinn Insurance and Sean Quinn Senior

 

On Friday evening before the October Bank Holiday, the Financial Regulator published a record settlement agreement with Quinn Insurance Limited ("QIL") and Mr. Sean Quinn senior. QIL has been required to pay a monetary penalty of €3,250,000 to the Financial Regulator. This represents a significant escalation in the size of settlements published by the Financial Regulator, eclipsing by a significant margin the previous highest penalty of €80,000 levied on Fexco Stockbroking Limited in March 2008 and the €50,000 levied on the Irish Nationwide Building Society earlier in the month.

 

Mr. Sean Quinn senior has also been personally required to pay a monetary penalty of €200,000, which is again significantly in excess of previously published agreements. The previous high water mark for personal financial sanctions was when Mr John Bohan and Mr Peter Hughes, directors of Apex Fund Services (Ireland) Limited were required by the Financial Regulator to pay a monetary penalty of €20,000 each back in August 2008. Mr. Quinn senior is also stepping down as Chairman and as a director of QIL.

 

Click here for details of penalties. Click here for the Financial Regulator's Settlement Agreement. Click here to see all IFSRA Enforcement cases.

 

Statement from Sean Quinn (senior), Quinn Insurance

Click here to read a reproduction of Mr Quinn's statement on the Settlement Agreement (the link is copyright of the Sunday Business Post published 25 October 2008. The Quinn Statement begins at the end of the second page).

 

16 October 2008 - EU COMMISSION takes legal action against ireland, spain, Belgium & sweden to ensure aml/cft compliance

IP/08/1522 - Brussels, 16 October 2008

Anti-money laundering: Commission takes action to ensure that Belgium, Ireland, Spain and Sweden implement EU laws

 

The European Commission has decided to refer Belgium, Ireland, Spain and Sweden to the European Court of Justice over non-implementation of the 3rd Anti-Money Laundering Directive. The transposition deadline for the Directive was 15 December 2007. The latest information on infringement proceedings concerning all Member States can be found at: http://ec.europa.eu/community_law/index_en.htm

 

Click here to read or previous story on EU Commission action and visit www.antimoneylaundering.ie for the latest information on Ireland's AML/CFT regime.

 

 

13 october 2008 - newsletter 5/2008 (october 2008)

Read Newsletter in Adobe - click here

 

New pages added to website

We have added additional drop-down menu pages to our website under the 'Training/Seminars' and 'News & Resources' top level pages.

 

Our News & Resources page now includes a new 'Compliance Documents' drop-down page, providing details of manual and procedures we write and develop for firms (including examples of content). Our Training/Seminars page now provides four new drop-down pages covering public training, in-house training, eLearning and Seminars.

 

*******

19 September 2008 - Financial Regulator introduces prohibition on short selling of financial stocks

The Financial Regulator, acting in concert with the UK Financial Services Authority, announced an amendment to the Market Abuse Rules with immediate effect. The purpose of the rule change is to prohibit transactions or arrangements "which have the effect of generating a net economic benefit from a fall in the value" of shares in quoted Irish banks or insurance companies.

 

The wording of the rule is so broad that it may also prohibit short trades in index futures containing the underlying issuers as a component, hampering the ability of investors to hedge exposure to the Irish market as a whole. The rule change will also affect CFD trading and financial spread betting in the named issuers.

 

Click here for our Briefing Note. Full details of the changes in Ireland and the UK can be found on our Resources page.

 

27 August 2008 - Supreme Court Appeal: DAVY & FINANCIAL SERVICES OMBUDSMAN

Mr Meade's office is understood to have lodged papers in the Supreme Court yesterday in which he appeals the ruling last month of Mr Justice Peter Charleton that quashed his ruling in a complaint by Enfield Credit Union against Davy stockbrokers. The grounds for his appeal are not yet known. Neither is the likely timing of any hearing of the case. Click here to download the text of the original judgement delivered by Mr. Justice Charleton.

 

Notwithstanding the appeal, the Financial Ombudsman's website currently informs visitors that "Due to the High Court Judgment of 30 July 2008 the procedures for dealing with complaints are being revised and will be updated in due course."

 

22 August 2008 - NEWSLETTER 4/2008 (august 2008)

Read Newsletter in Adobe click here

 

 

22 August 2008 - Financial Regulator fines fund administration firm (€5,000) and DIRECTORS (€20,000 EACH)

The Financial Regulator has entered into a Settlement Agreement with effect from 8 August 2008 with Apex Fund Services (Ireland) Limited and Messrs John Bohan, Director, and Peter Hughes, Director.

The Financial Regulator reprimanded Apex Fund Services (Ireland) Limited, Mr John Bohan and Mr Peter Hughes and required the firm to pay a monetary penalty of €5,000 and Mr John Bohan and Mr Peter Hughes to pay a monetary penalty of €20,000 each. Click here to download the text of the settlement agreement. Click here to see all IFSRA Enforcement cases.

 

 

30 July 2008 - NEWSLETTER 3/2008 (JULY 2008)

Read Newsletter in Adobe click here.

 

 

30 July 2008 - HIGH COURT JUDICIAL REVIEW: DAVY & FINANCIAL SERVICES OMBUDSMAN

On 30 July 2008, Mr. Justice Charleton delivered his judgement in the Judicial Review of J. & E. Davy trading as Davy (Applicant) and Financial Services Ombudsman, Ireland and The Attorney General (Respondents) and Enfield Credit Union (Notice Party). Click here to download the text of the judgement.

 

29 July 2008 - HIGH COURT: DIRECTOR OF CORPORATE ENFORCEMENT AND DCC

On 29 July 2008, Mr. Justice Kelly delivered his judgement in the matter of Director of Corporate Enforcement (Applicant) and DCC plc, S&L Investments Limited and Lotus Green Limited (Respondents). Click here to download the text of the judgement.

 

24 July 2008 - Financial Regulator amends QIF regime

The Financial Regulator has dropped the requirement for Qualifying Investor Funds to produce interim accounts and has increased the maximum percentage that can be invested into another collective investment scheme without being considered a feeder fund.

 

Click here for our Briefing Note. The amended Notices and Guidance Notes can be downloaded from our Resources page.

 

18 July 2008 - Ireland warned on EU money-laundering laws

Ireland has been formally warned by the European Commission to implement new money laundering legislation or face legal action. EU Internal Market Commissioner Charlie McCreevy wrote to 15 out of the 27 EU member states instructing these to implement the EU's Third Money Laundering Directive.

 

The Irish Times today (18 July 2008) reports Mr McCreevy as stating "The fight against money laundering and terrorist financing is a priority for both the Commission and the member states ... In these circumstances, the Commission has no other option but to proceed with legal actions . . . against those member states which have not implemented the directive, and to do so in as expeditious a manner as possible,".

 

Ireland together with Austria, Belgium, Czech Republic, Germany, France, Greece, Latvia, Luxembourg, Malta, Netherlands, Poland, Slovakia, Sweden and Spain received the warning.

 

In February 2008, the Irish Government approved proposals by former minister for justice Brian Lenihan for the introduction of the Criminal Justice (Money Laundering) Bill which would allow the EU directive to be transposed into Irish law.

The Irish Times today reports that a Department of Justice spokeswoman told The Irish Times “it is expected that the Bill will be published later in 2008”. Additional reporting: Reuters /© 2008 irishtimes.com

 

For details of our training courses on anti-money laundering and countering financing of terrorsim go to our training page by clicking here.

 

Please visit www.antimoneylaundering.ie for more information on the Irish AML/CFT regime.

 

16 July 2008 - EU Commission announces UCITS IV

The EU Commission’s Internal Market & Services Directorate General yesterday (16 July 2008) formally proposed the revision of the UCITS regime to incorporate previously-identified desirable improvements and to consolidate the existing legislation in the area. This UCITS IV process is hoped to be adopted by the EU Council of Ministers and the European Parliament by the second quarter of 2009, with the provisions entering into force in mid-2011. This initiative follows on from the 2005 “Green paper on the enhancement of the EU framework for investment funds” and an exposure draft discussing possible adjustments to the UCITS Directive published in March 2007.

 

Proposed changes include :

• New rules on mergers
• Master-Feeder funds
• Key Investor Information
• Marketing in other Member States
• Management Company Passport

 

Click here for more information.

 

11 July 2008 - Another day, another broker sanction:  Settlement Agreement between the Financial Regulator and Frank J Murphy Insurance Brokers Ltd and Mr Frank Murphy and Mrs Terri Murphy

 

Evidence of the Financial Regulator's administrative sanction regime continues afoot with the revocation of the authorisation (by agreement) of broker Frank J Murphy Insurance Brokers Limited and the disqualification of directors (by agreement) Frank J Murphy and Terri Murphy for 5 years and 1 year respectively.  Suspected breaches occurred up to 24 October 2006 relating to breaches by the firm and Mr Murphy and Mrs Murphy of their obligations arising under Investment Intermediaries Act, 1995 (“the Act”) and the Handbook for Restricted Activity Investment Product Intermediaries (“the Handbook”). These breaches included:

• a failure to lodge cash premiums received from Clients to the firm’s client premium account;
• the improper handling and improper withdrawal of client premiums held in the firm’s client premium account;
• the improper retention of client premium rebates;
• a failure to notify the Financial Regulator of breaches of the Act and Handbook when the firm became aware of such breaches;
• a failure to adhere to certain requirements contained in the Handbook; and
• a failure to carry out monthly reconciliations of the firm’s client premium accounts and to keep proper books and records.

 

Click here to read the full regulatory notice issued by the (Irish) Financial Regulator. Click here to see all IFSRA Enforcement cases.

 

 

31 MAy 2008 - Financial Regulator extends Consumer Protection Code and Minimum Comptency Requirements to Retail Credit Firms and Home Reversion Firms

The Financial Regulator has published addenda to the Consumer Protection Code and the Minimum Competency Requirements to extend their scope to Retail Credit Firms and Home Reversion Firms with effect from 1 June 2008. Click here to view the documents on our Resources page.

 

 

21 May 2008 - Newsletter 2/2008 (May 2008)

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Financial Regulator reviews of insurance practices

 

In March 2008, the Financial Regulator wrote to all insurance intermediaries with feedback from a number of themed inspections of the insurance intermediary sector. The purpose of these inspections was to monitor whether insurance intermediaries were disclosing all relevant fees and charges in their terms of business document and whether the charges applied for their services were within the limits stated in this document. The themed inspections also sought to establish whether premium rebates were being transferred to consumers in full.

 

The Financial Regulator noted that in general, compliance levels were good in the majority of firms inspected, although a number of serious issues were noted. 

• Incomplete prior disclosure of all charges
• Fees charged in excess of those stated in the terms of business document
• Premium rebates not remitted within time limits or subject to deduction
• Optional benefits sold without consumer indication
  

 

Read the full press release for Charges and Premium Rebates here.

 

This followed a similar letter to industry from the Financial Regulator in January 2008 giving feedback on a thematic review of sales and claims handling relating to Serious Illness cover. In that earlier review the Financial Regulator identified the following issues:

• The need to fully inform consumers of the key aspects of the product, especially restrictions and exclusions, was highlighted
• Further focus on promoting full disclosure by the consumer at point of sale was encouraged as this was a major cause of subsequent claims being declined
• Firms were asked to consider how best to highlight to customers the restrictions and exclusions regarding children’s claims

 

Read the full press release for Serious Illness Cover here.

 

 

minister approves drafting of new criminal justice (money laundering) bill 2008

 

 

On 12 February 2008, the Minister for Justice Equality and Law Reform, Mr. Brian Lenihan T.D., announced that his Department will draft a new Bill to transpose the EU’s Third Money Laundering Directive into Irish Law to strengthen the country’s current legislative provisions.  A period of consultation between the Minister’s Department and interested parties will take place before the completion of the drafting and publication of the Bill.

 

The new Bill will also address recommendations arising from the Financial Action Task Force (FATF) mutual evaluation report on Ireland’s published in 2006 and on the Council of Europe Convention on Laundering Search Seizure on the Confiscation of the Proceeds of Crime and on the Financing of Terrorism.  

 

The first link below will take you to the location of the relevant AML/CFT Scheme of Bill documents on our Resources page. The other three links will take you directly to the document you require. Compliance Ireland will submit comments to the Minister and any person who would like to join us in submitting comments may contact us at email@complianceireland.com

 

• Link to Resources page
• Link to AML/CFT Ministerial Press Release
• Link to the Scheme for new AML/CFT Criminal Justice (Money Laundering) Bill 2008
• Link to AML/CFT Regulatory Impact Assessment

 

 

20 November 2007 - Newsletter 6/2007 (November 2007)

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Financial Regulator changes policy to permit UCITS to short-sell (but announces this QUIETLY)

 

The Financial Regulator has amended its policy with regard to short-selling by UCITS funds, permitting them to enter into short-selling of physical stock subject to certain control criteria. The move is to be welcomed as it clarifies the capability to conduct investment strategies such as 130/30 within the framework of a UCITS vehicle.

 

The ability to short sell was already available to UCITS funds through the use of Financial Derivative Instruments and the Financial Regulator will now premit this facility to be extended to physical stock under similar limits as would apply to FDI transactions. The change in policy will require an amendment to Notice UCITS 12 and to Guidance Note 3/03 which will be effected in due course.

 

Regrettably, release of this document was not highlighted in the News section of the Financial Regulator's website and the document is located on the website at the bottom of the Industry->Funds->Legislation & Guidance Notes menu tree. We have made a copy of the document available for download by clicking here.

 

ireland applies for mifid gold plating

 

The MiFID Directive is a 'maximum harmonisation directive'. As such the intention is to ensure a common treatment across the European Union without national 'gold-plating'. Nonetheless, the Directive carries within it a capability to apply for national gold-plating measures.

 

As Con Horan, Prudential Director put it: " We will not be super-equivalent to the MiFID unless it is justified. Such instances were and are expected to be the exception rather than the rule."

 

Notwithstanding the above, Ireland has become the second European jurisdiction to apply for a gold-plating exemption in order to retain particular national client money requirements.

 

While the Financial Regulator has declined to make public the application, a copy of the application letter and supporting documents obtained from the European Commission are available for download from Compliance Ireland's specialist MiFID site: www.mifid.ie, including a copy of proposed Client Asset Requirements to be effective from 1 November 2007.

 

 

archeus capital management & others Vs globeop financial services

 

Hedge Fund Manager Archeus Capital Management and a number of funds managed by it filed a complaint with the New York County Clerk's office on 2 July 2007 (index number 602195-2007). The complaint alleged that GlobeOp as administrator of the funds, failed to properly keep and reconcile records of transactions of the funds managed by Archeus, or to provide Archeus with timely and accurate reporting on the status of its transactions.

 

An agreement was reached between Archeus and GlobeOp and the complaint was withdrawn.

 

For a publicly filed document, the complaint provides a salient lesson into how an aggrieved party might seek to characterise operational and staffing difficulties encountered in administering a fund as a direct cause of financial loss, reimbursable by the administrator.

 

The complaint also quotes at length from GlobeOp's own marketing materials, emphasising the importance of ensuring that all of a firm's documentation accurately reflect its actual capabilities and offered services.

 

A copy of the full complaint can be found by clicking here.

 

 

Compliance Ireland Newsletter 4/2007 (July 2007)

You can read this Newsletter in Adobe format by clicking here

 

Compliance Ireland Newsletter 3/2007 (May 2007)

You can read this Newsletter in Adobe format by clicking here

CONTACT DETAILS:

Compliance Ireland Regulatory Services Limited

Lower Ground Floor, 13 Adelaide Road, Dublin 2, Ireland

ph +353 1 425 5962 email@complianceireland.com

Peter Oakes, Principal
+353 87 2731434
peter@complianceireland.com

Kevin O'Doherty, Principal:
+353 86 8280525
kevin@complianceireland.com


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Updates to affiliated websites

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