Central Bank scope of foreign banks here sets down a Brexit marker

Cantillon: Days of Dublin being a soft regulatory touch will not return to win UK business

Central Bank of Ireland. Photograph: Alan Betson

Central Bank of Ireland. Photograph: Alan Betson

 

The Central Bank’s decision to undertake site reviews of the regulatory performance of international banks with Irish bases is interesting for two reasons.

The first is that it found that only one had a completely clean bill of health. The second was that the bank has – whether this was its goal or not – effectively set down a marker as Brexit approaches.

International banks are welcome to relocate here from London, but need to realise that regulatory rules will be applied.The old days of Dublin being a soft regulatory touch will not return to win Brexit business.

We are all familiar with the regulatory failings of the old Central Bank structure in the run up to the economic crash, when the domestic banks were allowed to build up huge exposures to an overinflated property market.

Regulation of IFSC banks had much of the same failing, even if the burden did not fall on the Irish exchequer. There was a feeling that the priority was to build up investment and jobs in the IFSC. As with the Irish banks, regulation was surrounded with phrases such as “light touch” and “principles based”.

Now, regulation is much more hands on, even if the Central Bank still faces calls to give more emphasis to the consumer agenda. The big Irish and international banks are under the direct control of the ECB’s supervisory arm. So the banks covered in this study were the next tier of smaller IFSC banks directly supervised by the Central Bank of Ireland.

That said, the extent of the regulatory shortcomings found in the international banks here is striking. The inspections found widespread shortcomings in the way banks reported key data to the Central Bank, such as their risk-weighted assets. And the Central Bank didn’t hold back, identifying a lack of proper investment in IT, not enough expert staff, poor procedures, mistakes and so on.

Looking at the report, it might be tempting to conclude that a lot of what is being required is “ box-ticking”. But look at the string of scandals and turmoil in Irish and international banking and you realise that tight controls are entirely appropriate. The banks may complain. But they really only have themselves to blame.

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