Outgoing regulator warns against easing of regulation in final address

Matthew Elderfield points to cost to society of financial failure


The outgoing Financial Regulator, Matthew Elderfield, has warned against easing off on regulating the financial sector in what he said was probably his last public address in his position.

Mr Elderfield, who is moving to take up a position with Lloyds Banking Group after the summer, took the opportunity while speaking to an insurance industry conference in Dublin to express the view that strong banking and insurance supervision should continue into the future.

His comments about regulation come less than a week after the deputy head of AIB, Michael Somers, said he was "dismayed" at the number of banks in the IFSC that had handed back their licences over the past two years and that this was because of "heavy regulation".

Mr Elderfield told the European Insurance Forum in Dublin yesterday that, post-crisis, most boards and managers understood that higher standards were here to stay and that Ireland’s reputation as a place to do business depended on “good regulation and strong supervision”.

In a reference to the former Anglo Irish Bank chairman Seán FitzPatrick, he said it was not too long since a banker had said that it was "time to shout stop; the tide of regulation has gone far enough".

At some point, the debate about over-regulation and supervision would return, "if indeed it has ever gone away".

Transparent debates
This was healthy and reasonable but he hoped that debates on regulation and supervision would be done transparently and that they would be given "short shrift if they take place as a vaguely articulated concern about burden and competitiveness without being grounded in specifics to ensure an informed debate".

Mr Elderfield said it would be sensible, when the debate did resurface, to cast a watchful eye on whether adequate resources, best practice powers and genuine independence were being maintained “so that strong supervision survives this ebb and flow intact, through bad times and, in the future, good ones too”.

He said concerns over the cost of maintaining a high quality supervisory staff, including concerns over pay rates when austerity eases, should be tempered by the terrible cost to society of financial failure.

"The €1.65 billion projected insurance scheme support for Quinn Insurance is in the order of 80 times the current year costs of supervision of the insurance industry.

“And the €64 billion capital investment from the taxpayer into the Irish banking system represents a staggering 1,409 times the current year costs of banking supervision.”

He said other key elements to what was required included the strong set of powers currently being adopted in the Dáil and a supervisory philosophy that encouraged the challenging of firms and ensured that problems were tackled rather than allowed to fester.

The final element key for a supervisory institution was that it was truly independent from industry and politics in the making of its supervisory decisions.


Distressed mortgages
Mr Elderfield afterwards told reporters that if deals that were being offered by banks to distressed mortgage customers, some of which involved accruing interest on that part of the mortgage that was not being serviced, were not sustainable, they would not be in compliance with what was required by the Central Bank.

He said the banks needed not just to reach specified targets, but had also to do deals on terms that were sustainable.

“If we think they’re not being done on sustainable terms, we will communicate that to them.”

He said the Government had told bank executives that their jobs were at risk if they missed the targets on tackling distressed mortgages.

Bank chief executives were taking the targets “very seriously”, he said. “Senior management have to really make this happen if they want to stay in their jobs.”