Davy bows to Government pressure with statement

Board review on ‘reckless’ actions will be led by brokerage’s four non-executive directors

Davy bowed on Wednesday to Government pressure to issue a statement on its €4.1 million Central Bank fine for "reckless" actions in relation to a bond deal in 2014, saying its board has commenced a detailed review of the regulator's findings and will take "appropriate action".

The board review will be led by the broker's four non-executive directors: chairman and former National Treasury Management Agency (NTMA) chief executive John Corrigan; Ronan Murphy, a former senior partner of PwC Ireland; Ronan Molony, one-time chairman of solicitors McCann FitzGerald; and Patrice McDonald, a former executive with Barclays.

“Davy deeply regrets the shortcomings that emerged from the Central Bank of Ireland’s investigation and apologises unreservedly and unequivocally that these failures occurred, and that Davy failed to adhere to the high standards expected of the firm both internally and externally,” the firm said, adding that it is “satisfied” that the issues that occurred seven years ago “could not recur”.

Group of 16 staff

The penalty was levied on the stockbroker in relation to a bond deal where a group of 16 staff sought to make a profit without telling the client for whom it was acting or the firm's compliance team. The Central Bank found that Davy breached European Union rules by failing to take all reasonable steps to see whether a conflict of interest arose in relation to the trade.

Pressure is also mounting on Davy from big clients, including the NTMA and some of the largest companies on the Dublin stock market, as they monitor how the firm is handling the fallout from a fine and regulatory reprimand.

The NTMA, which recognises Davy as the only Irish-owned primary dealer in Irish Government bonds and regularly uses the State's largest securities firm as part of a consortium of investment houses to market large bond sales, said that it noted the "very serious" Central Bank findings and was awaiting a response from the brokerage.

Bank of Ireland said it has sought clarification from Davy, a corporate broker to the lender, on how it will address failures highlighted by the Central Bank.

“We are disappointed by Davy’s breach of its MifID obligations and falling short of the standards expected,” a spokesman for Bank of Ireland said, referring to EU investment regulations. “We have been in contact with Davy to understand how the failures are being addressed. We have also sought assurances that the Central Bank of Ireland’s findings do not impact any aspect of Davy’s role as corporate broker to Bank of Ireland.”

Other major clients, Permanent TSB and housebuilder Glenveagh Properties, have also raised concern in statements issued in response to questions from The Irish Times.

However, a number of others, including Smurfit Kappa, Ryanair and Glanbia declined to comment when asked if the regulatory reprimand will lead to a review of their corporate broker relationships with the State's largest stockbroking firm.

Explanation required

Meanwhile, the Oireachtas finance committee is to ask Davy for an explanation of the events that led to it being hit with the €4.1 million fine.

At a behind-closed-doors meeting on Wednesday, the committee agreed to write to the stockbroker with a series of questions about the bond deal that lay at the centre of the regulatory investigation.

John McGuinness, Fianna Fáil TD for Carlow-Kilkenny and chairman of the committee, said it would raise the issue with the Central Bank when it comes before them next week, and intends to write to Davy and invite the stockbroker to appear before it.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times

Jack Horgan-Jones

Jack Horgan-Jones

Jack Horgan-Jones is a political reporter with The Irish Times