Regulator knew of AIB overcharging, says auditor

Tue, Mar 24, 2009, 00:00

The Financial Regulator knew about AIB's overcharging in 2001 but gave an Oireachtas inquiry the "false impression" that they were unaware of it until 2004, the bank's former internal auditor said today.

Eugene McErlane, who helped highlight overcharging of AIB customers by the bank, was speaking before the Oireachtas Joint Committee on Economic Regulatory Affairs this afternoon. He was called before the committee to discuss the role of internal audit at the bank.

"The key facts are that the Financial Regulator knew about overcharging in AIB in 2001, conducted its own investigation in 2002 and failed to protect consumers," he said.

"Further, in 2005 the Financial Regulator failed to inform an Oireachtas Inquiry about their investigation and in fact gave the false impression that they were unaware of overcharging until 2004."

He said a special issue audit report into fees and charges completed in 2001 was made available to the Central Bank, and that AIB had pledged to carry out a review by branch management into the matter, making refunds where appropriate.

"Even though executive management committed to carrying out a thorough review of customer accounts, the audit team found that several months after the issuing of the audit report no action had been taken," he said.

Mr McErlane said the Regulator was subsequently informed of this failure. However, he said the Joint Committee on Finance and Public Service was not told of the investigation into the matter in 2005 when it conducted hearings into the Regulator's report on the issue, which was published in 2004.

He said the Financial Regulator's report failed to give the full story.

"The report gave the impression that the regulator had acted in the public interest. I think it is relevant to consider that if a whistleblower had not exposed the problem in 2004 then the overcharging practices may have carried on indefinitely," Mr McErlane said.

Mr McErlane said it was "ironic" that the chairman of the Regulator had used the recovery of the overcharged fees as evidence that they had been tough on the banks and no "cosy relationship" existed.

In a statement released tonight, however, the Financial Regulator said allegations it had withheld information over its 2004 report were "without foundation".

The Regulator said it published a "detailed report" in December 2004 into foreign exchange and other charging issues at AIB following a full investigation into these matters. "In that report it is stated clearly that the Financial Regulator became aware of these matters in April of 2004."

"Any allegations, such as those made at the Joint Oireachtas Committee on Economic Regulatory Affairs today, that the Financial Regulator would have withheld information relevant to its 2004 report are completely without foundation," the Regulator said.

"Entirely separate and unrelated instances of overcharging by AIB to those covered in the 2004 Report were reported to and known to the Central Bank (the then banking regulator) in 2001."

"These matters were examined, and AIB were instructed to report to the Office of the Director of Consumer Affairs, which was the relevant competent authority for issues relating to bank charges at that time. AIB's internal audit function informed the Central Bank at the end of 2002 that all necessary repayments had been made to customers."

The Regulator said it was writing to the Joint Oireachtas Committee about these issues.