KBC Bank fined €1.4m for breaching code of practice

KBC Bank Ireland has been fined €1.4 million by the Central Bank for breaches of the Code of Practice on Lending to Related Parties, which may include directors, senior managers, significant shareholders of the bank and spouses or domestic partners.

The breaches of the code occurred from September 26th, 2012 to February 23rd, 2016, during which time the Central Bank says the firm failed on 18 separate occasions to have adequate policies and processes in place to identify loans to related parties; to obtain approval prior to granting a loan to a related party; and in respect of the management of four loans to two related parties.

Derville Rowland, director of enforcement with the Central Bank, said that related party lending is an issue of "significant prudential concern" for the Central Bank, particularly in the context of identified failings at the time of the financial crisis when loans were issued to related parties without adherence to internal controls and procedures.

Ms Rowland said that repeated breaches of the Code by KBC Bank, in spite of ongoing Central Bank intervention and engagement with, “is unacceptable and demonstrates a failure on the part of the firm to have in place and adhere to the necessary policies and processes to ensure effective compliance with the code”.

Maturity date

The regulator drew attention to the fact that the bank did not seek the approval of its related party lending committee before it extended the maturity date on a number of loans, including a €6.6 million loan facility to a related party entity on eight separate occasions in the period September 2012 to October 2014, while a credit card facility worth € 2,000 was also extended to a related party individual in April 2014.

The Central Bank also highlighted the bank’s policies and processes which were in place during this time and which “were not adequate to identify loans to related parties”. In particular, the regulator found a lack of awareness by staff across three separate divisions; a gap in training processes; and procedural weaknesses

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The Central Bank has stepped up its enforcement in recent years. In 2014, Ulster Bank was fined €3.5 million by the Central Bank over the serious failings of its IT systems in June and July 2012, while last year, Western Union Payment Services Ireland was fined € 1.75 million because of failures in anti-money laundering practices.