Report: Certain staff and management at AIB deliberately hid from the financial services regulator the fact that thousands of its foreign exchange customers had been overcharged by €34.2 million over eight years.
Dr Liam O'Reilly, chief executive of the Irish Financial Services Regulatory Authority (IFSRA) said that, between 1998 and 2004, AIB had at least seven opportunities to identify or disclose the breach to the relevant regulators but failed to do so.
He said the failures uncovered within AIB by the investigations were completely unacceptable.
"We will not tolerate such practices within the financial services industry," Dr O'Reilly said.
In its report, IFSRA stated that it had discovered that a key opportunity to notify the regulator occurred in 2002 when the problem, whereby the bank was charging a higher rate of commission than had been approved by the regulator, was analysed in an internal memo. That memo drew attention to the potential cost of dealing with this issue and also of the need to inform the regulator.
He refused to discuss who prepared the memo and who it was circulated to within the bank, citing concerns about prejudicing the internal disciplinary action underway at the bank.
Around two years later, between January and April 2004, IFSRA stated that AIB took "deliberate measures" to reduce the foreign exchange charge being applied and that the correct rate was being charged by April.
"This was done without informing the regulator. These matters are open to the interpretations that AIB then intended to notify the regulator subsequently of a proposed increase and to do this without ever drawing attention to the previous breach, which had persisted for almost eight years," according to IFSRA.
Its investigation also shows there was inadequate documentary evidence of decisions made in relation to changes in charges, including the original notification. It also found that the procedures to raise matters "up the line" in AIB were inadequate and contributed to this matter persisting for so long.
"Controls within AIB were also weak in relation to monitoring customers' charges," the report stated.
It confirms that the total amount of excess charges by AIB came to €34.2 million, including interest. About €13.5 million, or about half of the estimated total €25.6 million, has already been repaid to customers who were overcharged. Of the remaining refunds for other charges totalling €8.6 million, AIB has repaid €2.2 million.
"The extensive repayments to customers and other actions by AIB described in this report provide assurance that the failures have been identified and are being rectified and provide a measure of confidence that the failures will not be repeated," he said.
IFSRA remains "deeply disappointed" that these events occurred in AIB.
"I have no doubt that this disappointment is shared equally by the staff of AIB," Dr O'Reilly said.
The regulator has ordered AIB to address all of the serious issues identified "comprehensively, speedily and with utmost priority".
The bank must make all practical efforts to refund the monies and, where customers cannot be identified and refunded, it has been agreed that AIB will not be the beneficiary.
AIB must report the outcome of the disciplinary actions against individuals found responsible in the foreign exchange overcharging to IFSRA. The bank has also been told to undertake a fundamental review of its product pricing policy and systems, strengthen its compliance functions and introduce a central register of all charges levied on products.
Dr O'Reilly warned that any financial institutions found to have acted in a similar fashion can expect to suffer significant financial costs and "the inevitable public reputational damage that will follow."
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