Governor of the Central Bank Patrick Honohan described the regulator's role in the illegal share-buying scheme devised in 2008 to unwind Seán Quinn's stake in Anglo Irish Bank in his office on Dame Street last Wednesday as a "sorry story".

The recent Anglo trial showed that, from at least March 2008, the Irish Financial Services Regulatory Authority knew that Anglo intended to loan a large sum of money to the Quinn family to buy Anglo shares.

Judge Martin Nolan concluded last Tuesday it was "incredible" that back in March 2008, four months before anything actually happened, "red lights didn't go off some place in the regulator's office and the appropriate legal advice was not sought". Judge Nolan stated the regulator was "more anxious to solve the problem than comply with the technicalities of the law, but nonetheless the law".

In short, the watchdog was prepared not to bark if needs be.

All 'behind us'
Mr Honohan says there is "nothing" that he would disagree with when it comes to the judge's conclusions but: "This is something that is behind us."

He gave no indication that anyone in his office, past or present, would be held accountable for what happened.

Light-touch regulation may be dead, but light-touch accountability lives on.

From day one – February 15th, 2009 – when the whole affair broke in the Sunday Times, the Financial Regulator has been at pains to say it was "working closely" with the relevant authorities to hold bankers to account. Along the way, the State has shown little interest in holding its own civil servants up to such scrutiny.

There was never a raid by gardaí of Dame Street seeking documents. No dawn arrests or grilling of its officials. There was not even a search carried out to assist its officials checking their homes for any mislaid notes.

Anglo, of course, was not as fortunate.

Bland preprepared statements by the regulator displaying little or no recall of key events passed into evidence unchallenged. Compare this with Anglo’s bankers who handed over documents and answered hundreds of questions in long interviews over six years. Anglo’s top bankers left in public disgrace.

Banker vs regulator
In contrast, Patrick Neary, the Financial Regulator, was heaped with public praise and given a golden handshake as he retired. The bankers got the weight of the law. The regulator got lucky.

Judge Nolan referred in his judgment to his bafflement that the regulator did not take “appropriate legal advice” to stop a crime being committed during the many months Anglo and the regulator struggled to sort out Quinn’s gamble on the bank’s shares.

In evidence that went barely noticed during the trial, it emerged that, on July 2nd, 2008, McCann FitzGerald, a large Dublin law firm, sent George Treacy, head of legal and enforcement in the financial regulator, five pages of legal advice.

“Dear George,” the letter began, “I refer to our telephone conversation in the course of last week when you asked me to consider. . . the scope of section 60 of the Companies Act 1963 (as amended), which deals with, and in general terms prohibits or restricts, the giving of financial assistance by a company for the purchase of its own shares.”

The letter goes on to look at what is the case law around section 60 and whether lending by a bank to fund an investment in contracts for difference could be considered the same as lending to purchase shares.

Topics such as market abuse and transparency are mentioned. This was the equivalent in regulatory terms to a warning siren going off in a nuclear silo.

The regulator asked for this legal advice when a certain transaction was being considered.

This would see the Quinn family acquire some shares in Anglo with funding from Crédit Suisse; Bain Capital, an American investment firm, would buy some more, with its own finance.

The regulator in asking for legal advice was checking whether anything that had happened in the preceding months, when Quinn was lent hundreds of millions to fund his Anglo gamble, should be of concern.

Twelve days later, this deal fell apart, as the global financial crisis deepened.

The regulator was then told that Anglo was going to have to lend to the Quinns at least for a while until a structure was put in place for Crédit Suisse to refinance.

Anglo also told the regulator Bain had pulled out and it (Anglo) was now going to go with 10 of its long-term clients instead. There would be at least “some” lending by Anglo to help these investors.

What then of the legal advice received only 12 days earlier? Surely the regulator would return to McCann FitzGerald to ask it for a fresh opinion given the new circumstances? It didn’t.

Averting of eyes
It looked away from a crime, to prevent a catastrophe. Then the story broke in the media. In the panic, the regulator again looked away. It forgot about its former friends, the bankers.

Suddenly, it was “investigating”. It was “working” to find out what happened.

The sound of barking was deafening. Round up the bankers and throw away the key was the message.

First a jury and then a judge saw through this charade. Two bankers were convicted but did not receive a prison sentence. But it was clear from the decisions of both a jury and a judge that they could see the hidden trail leading back to Dame Street. This is much more than a “sorry story”. It is a great scandal.

Tom Lyons is Senior Business

Correspondent