MINISTER FOR Finance Brian Lenihan is to publish a Bill later this week to reform the Central Bank and the Financial Services Authority of Ireland (FSAI).
This announcement followed the release of a report by Comptroller & Auditor General (CAG) John Buckley yesterday in which he outlined the inadequacy of the Financial Regulator’s response to the financial market crisis.
“The Regulator acknowledged that, in retrospect, it was clear that the actions it took were insufficient and were not taken early enough,” Mr Buckley said in the 87-page report.
“It took what it considered to be proportionate actions to mitigate the risks of the system but this was not enough.” While acknowledging that the Financial Regulator has already begun intensifying supervision, speeding up information flows and addressing internal communication issues, he said that further measures are required to make regulation “more accountable”. For example, consideration should be given to requiring the regulator to submit a statement on supervisory matters to the Dáil each year.
He also recommended that the regulator place greater emphasis on testing actual transactions and balances as part of its inspection work. This would have to be balanced by a “top-down” analysis of the business models and strategies of individual financial institutions.
Furthermore, the report suggested, an annual assurance by auditors on the functioning of the internal corporate governance regime of Irish financial institutions would serve to “strengthen public assurance”.
The C&AG report also said that there would be merit in a “tripartite review” by the Central Bank, the regulator and the Department of Finance into the actions taken in response to the financial crisis, in order to identify lessons learned for future policy formulation.
Responding to the report, Labour party finance spokeswoman Joan Burton said that such a review would not be “just for the sake of posterity”. “It is the very least that Irish taxpayers deserve,” she said.
Ireland now needs regulation that is both tougher and smarter, she added. “We need to move on from the era of light-touch, ‘market knows best’ regulation to a regulatory system based on the twin pillars of rules and principles.”
Richard Bruton of Fine Gael welcomed the recommendations outlined in the report.
The financial regulator pointed out that new procedures and processes have been put in place to address many of the issues identified.
C&AG SPECIAL REPORT: THE MAIN POINTS
- There were shortcomings in the regulation of financial institutions in Ireland, the EU and further afield.
- The financial regulator might be required to give an annual statement to Dáil Éireann.
- An annual positive assurance might be given by auditors in relation to the functioning of internal corporate governance regime in financial institution.
- A review should be carried out by the Central Bank, the Financial Regulator and the Department of Finance on the efficacy of the measures taken individually and collectively in the financial crisis.
