An independent review undertaken at Davy, after the Central Bank fined the firm in March over a bond trade involving a number of senior executives, found that staff – led by "small number of individuals" – engaged in "high levels" of trading in shares and other securities between 2014 and 2020.
The author of the review, Paul Sharma, managing director with Alvarez & Marsal's (A&M) UK financial services regulatory practice, recommended that the total value of trades executed in staff accounts should be reduced "significantly" in future.
The review did not identify any instances of staff dealing that were similar in characteristics to the controversial 2014 bond trade that gave rise to the €4.1 million Central Bank fine and triggered a crisis that saw senior staff leaving the business and the company putting itself up for sale.
Conflict of interest risk
However, A&M “identified instances of personal staff dealing in relation to a very small number of high-value transactions that displayed signs of potentially higher conflict of interest risk”, according to key findings from the review, published on Thursday as the sale of Davy’s assets was announced.
But while A&M did not identify “any serious concern as to a conflict of interest or client detriment” in any of the transactions, it found that not all were subject to adequate review – or documentation – at the time.
The Central Bank fine and reprimand came after an investigation which found that 16 staff, including top executives, had sought to make a profit by taking the other side of a bond deal in 2014 involving a client without telling him or the firm’s compliance team.
The Davy 16, including former chief executive Brian McKiernan and former deputy chairman Kyran McLaughlin, bought at a knockdown price an Anglo Irish Bank bond that the firm was given the job of selling for Northern Ireland property developer Patrick Kearney.
Remedial actions
A&M said that “remedial actions” recommended in a separate third-party review in 2015 and 2016, after initial details of the Anglo bond case emerged in a court case, had been undertaken in a “timely basis” with improved controls implanted on conflicts of interest, staff dealing and account opening.
It also said that initiatives currently under way within Davy to strengthen its controls were “adequately designed”.
However, Mr Sharma has also recommended that Davy tighten its conflicts of interest and staff dealing policies. This would see the firm’s compliance department tracking aggregate trading levels and trading patterns of individual staff members.
He also called for the setting of staff dealing “trigger points” that would prompt more intensive review or escalation to the group’s board.
"The Davy board has accepted those recommendations and they will be implemented in full," group chairman John Corrigan said in a statement on Thursday as details of the three-part sale of the firm's assets were revealed.
Davy sale
Davy said on Thursday that it is selling its assets in three pieces, with the total value of the deals worth up to €605 million.
Bank of Ireland confirmed on Thursday that it has it has reached a deal to buy Davy's core capital markets and wealth-management businesses for an enterprise value of €440 million, plus the possibility of up to €40 million of further payments from 2025, subject to the performance of the business.
The bank will also pay a further €125 million for excess cash on Davy's books. A large portion of this will come from the agreed sale, also announced on Thursday, of Davy Global Fund Management (DGFM), the company's fund-servicing and fund-management arm, to Luxembourg-based peer IQ-EQ. Sources had previously told The Irish Times that this business was worth more than €70 million.
The cash pile will also include €19 million Davy is set to receive from the separate sale of its 50 per cent stake in Rize ETF, a UK-based exchange-traded funds business.
