BANKING ENFORCEMENT:BANKS FACE more challenging regulation and tougher enforcement under the new regime proposed by the State's financial services watchdog.
Central Bank governor Patrick Honohan’s recent report singled out poor and indecisive regulation, which deferred to the banks’ own management, as one of the root causes of the financial crisis.
The Central Bank’s paper on future of banking, published yesterday, pledges to change this by delivering proper and effective regulation of the Republic’s financial institutions and markets that will protect consumers and the industry itself.
The document states that “all banks can expect a more intrusive and challenging approach to banking supervision” and says that it will focus particularly on domestic institutions with a lot of influence on the overall economy.
New legislation will merge the financial regulator and Central Bank. Prof Honohan will be governor with the head of financial regulation, Matthew Elderfield, and director general, Tony Grimes, answering to him.
The regulator will also take a tougher approach to supervising banks and finance institutions that will make “judgement on banks’ own judgements” and will “tenaciously” defend the public interest.
It will have two frontline supervision departments, one for retail banking and the other for wholesale. A team of specialised financial and business analysts will support the supervisors’ work.
A dedicated enforcement directorate will have investigative expertise and take credible action where necessary.
Prof Honohan’s report, published earlier this month, pointed out that any new agency needed to establish its reputation for enforcing the rules quickly.
“This creates expectations as to how the rules, codes, regulations and principles will be enforced, which will, in turn, influence behaviour,” he says.
The reconstituted Central Bank will also have a panel that will assess risks as they arise or evolve, and advise on how to mitigate them, and on proposed rules and regulations.
Along with these, it will have a department dedicated to financial stability, which the report says is likely to be shaped by both domestic and EU influences over the long term. Its immediate tasks will include setting up a systemic risk assessment framework and an analysis of the Irish banking sector.
To support its work, the Central Bank will recruit an extra 150 employees this year, bringing overall numbers up to 1,300. Following on from this, it could increase regulatory staff by 150 to 200 over the succeeding two years.
It aims to have a minimum of 10 supervisory staff for each of the major banks under its charge.
It will also improve specialist expertise by recruiting staff with direct business and banking experience, especially those with a background in credit, liquidity, treasury, markets and risk.
“Our new approach to supervision requires staff with appropriate technical and commercial skills that are able to effectively challenge and interrogate institutions,” the report says, adding that they will have to be paid and trained properly.
