New laws for top bankers will be ‘proportionate’ – Paschal Donohoe

Planned new laws to give the Central Bank more powers to make top bankers more accountable in the wake of the tracker-mortgage crisis must be "proportionate" and "effective", the Minister for Finance said.

"There will be a cost to this regulation. Are the improvements worth it? We must be particularly cautious we don't drive consumers into lesser regulated sectors where costs are lower because of this, thereby putting them in an inferior position," Paschal Donohoe said at a conference on banking culture organised by law firm Eversheds Sutherland in Dublin on Wednesday.

The Minister added that as bankers seek to meet mounting regulatory burdens under his new laws, they must not exempt themselves from “thinking” independently about acting properly and in the best interests of customers. Mr Donohoe plans to publish a draft version of the legislation during the first three months of 2019.

His plans to legislate for a so-called senior executive accountability regime – similar to rules introduced in the UK two years ago – will force banks to document each top manager’s responsibilities, making it easier for regulators to make individuals answerable if they take unnecessary, uncalculated risks, refuse to follow correct processes or knowingly commit wrongdoing.

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The Central Bank currently has the power to fine individuals up to €1 million and bar them from working in important roles in regulated firms.

‘Bond of trust’

The Minister said he expected that the planned new regime would initially apply to Irish banks – where the “bond of trust” with society “has been sundered” – before being introduced gradually across other financial sectors.

In July, the Central Bank published a report into the culture of Irish banks in the wake of the tracker mortgage scandal, concluding that top executives retain too much of a crisis-era “firefighting” mindset to place customers at the heart of all decisions.

“The culture review has been described as a watershed moment for Irish banks,” Mr Donohoe said. “The true test of whether this is a turning point for Irish banks, and the financial services industry more widely, will be if we find ourselves with firms who truly do consider the impact of their business decisions on individuals, the economy and society as a whole.”

Derville Rowland, director general for financial conduct at the Central Bank, told the conference that a senior executive accountability regime "is not primarily about assigning blame, but rather about encouraging senior people in firms to identify what might go wrong and do their best to prevent it".

Bank of Ireland chief executive Francesca McDonagh, who has placed culture reform at the heart of a wider transformation programme unveiled in June, told delegates at the conference that a “good culture is not a nice-to-have, it’s a must-have”.

“Culture makes a tangible positive difference for customers, colleagues and sustainable financial performance,” Ms McDonagh said.