Explainer: Where does AIB fine leave wider tracker mortgage issue?

Central Bank investigation begun in 2015 has not yet been completed

The Central Bank’s move to fine AIB and its EBS subsidiary a total of €96.7 million for their involvement in the industrywide tracker mortgage scandal, dating back more than a decade, brings the total levied against lenders to date by the regulator to more than €178 million.

Permanent TSB (PTSB) was fined €21 million in May 2019, a record at the time. And in late 2016 PTSB’s former subprime lending unit, Springboard Mortgages, was landed with a €4.5 million sanction. KBC Bank Ireland was fined €18.3 million in September 2020, seven months before the Belgian-owned lender revealed that it was planning to leave the Irish market.

Meanwhile, in March last year, Ulster Bank in the Republic was hit by a €37.8 million penalty – coming just weeks after it confirmed that it was also heading towards the exit door.

An enforcement investigation into Bank of Ireland is continuing. It has set aside money for a likely fine in an overall sum of €94 million ring-fenced at the end of last year to deal with remaining tracker issues.


The Central Bank, which started an examination into the tracker mortgage issue in late 2015 and began enforcement investigations the following year, has had to take care to carry out thorough, forensic work to build cases against individual lenders.

Law changes in 2013 doubled the maximum monetary penalty the regulator can impose on a financial firm for rule breaches from €5 million to €10 million, or 10 per cent of turnover and, for individuals, from €500,000 to €1 million.

The fines levied against PTSB, KBC, Ulster Bank, AIB and its EBS subsidiary cover rule breaches that occurred both before and after the 2013 changes.

Where does the money paid in fines end up?

All fines collected by the Central Bank are returned to the exchequer. The fines against AIB and EBS are the regulator’s 148th and 149th settlements under its so-called administrative sanctions procedure since 2006, bringing total the total to more than €298 million.

Irish taxpayers, of course, own almost 69 per cent of AIB. So, in effect, most of the money it is paying amounts to a circular transaction back to the State.

Deputy Central Bank governor Derville Rowland told reporters on Thursday that she recognised that much of the AIB fine is being remitted to the Government, but she said “it is absolutely important that institutions that operate commercially in financial services are held to account” for regulatory breaches “without fear or favour”.

How did the tracker saga start?

Tracker mortgages – cheap loans that track the main European Central Bank (ECB) rate – were introduced in the Republic in 2001 by Bank of Scotland and quickly became a popular product across the industry.

All was good for the banks as long as their own funding costs were in sync with Central Bank rates. However, as the financial crisis set in 2008, lenders saw their financing costs soar and they quickly started to withdraw tracker products from new customers.

While cases of lenders wrongly denying borrowers their contractual right to tracker loans began to emerge around 2009, it would be August 2015 before AIB set up its own internal tracker review. It took a further two months for the Central Bank to embark on a broad examination and order the industry to trawl through its books for affected borrowers.

AIB wouldn’t fully acknowledge until December 2017 – after political and public uproar over how banks were avoiding acknowledging the full extent of wrongdoing – all of the main groups of its customers affected by the issue. Even then, it was only planning to pay a certain group of 5,900 customers €1,615 each for a “service failure” for denying them the option of moving to a mortgage tracking the ECB rate.

The bank consistently argued that the prevailing tracker rate at the time would have been 7.9 per cent. However, a Financial Services and Pensions Ombudsman (FSPO) ruling on a test case in early 2020 – outside the Central Bank process – paved the way for this group of customers to be included for proper compensation.

In all, 10,015 individual AIB customers were affected. In the most severe instances, it resulted in the loss of 53 properties, including 13 family homes, as customers struggled financially because of the overcharging.

Some 2,830 EBS customers were affected, with 84 properties, including eight family homes, ending up being lost as a result.

How much has AIB paid in refunds and compensation?

Some €230 million under the Central Bank-overseen process. However, the bank is understood to have paid out a further €167 million as a result of the ombudsman’s decision. The wider industry, which has admitted to more than 41,000 cases, has paid out more than €735 million to date under the Central Bank examination.

Banks have set aside €1.5 billion of provisions in recent years – with AIB accounting for more than €600 million of this – to deal with redress, compensation, administrative costs tied to the examination, and fines.

Is the Central Bank investigating individual bankers for their actions in relation to the tracker debacle?

The regulator has consistently said that it is looking at the conduct of firms and senior bankers.

Last November, the Central Bank said it was setting up an inquiry into an unnamed former Permanent TSB executive in the first known move by the regulator to pursue an individual for an alleged role in the industrywide debacle. The Irish Times subsequently reported that the individual in question was the bank’s former chief executive, David Guinane. So far, there have only been private inquiry management meetings in relation to the case, presided over by UK barrister Peter Hinchliffe.

It is expected that more cases against individuals will be pursued. Central Bank officials refused to be drawn on Thursday on whether it would go after former or current executives at AIB or EBS.

Under current rules, the Central Bank must first find against a firm before taking cases against individuals. Planned legislation to give rise to a so-called a senior executive accountability regime (Sear) is aimed at allowing the regulator to find against individuals first. The new regime is expected to be in place next year – four years after the Central Bank asked for the additional powers.