Financial watchdog's impeccable pedigree

 

PROFILE:The new head of financial supervision has a reputation for reform and hard work, writes SIMON CARSWELL

NEXT THURSDAY marks Patrick Honohan’s first joint meeting of the boards of the Central Bank and Financial Regulator since his appointment as governor at the beginning of last month.

He will lead his first meeting knowing that he has found a highly-regarded international regulator for the key post heading up financial regulation within an organisation that requires serious reform.

The appointment of Matthew Elderfield, chief executive of the Bermuda Monetary Authority (BMA), as head of financial supervision was made last Monday – 10 months after Pat Neary stepped down as chief executive of the Financial Regulator following the secret loans scandal at Anglo Irish Bank and the near-collapse of the Irish banking sector.

Elderfield assumes the role held previously by Neary – and more recently by Mary O’Dea on an interim basis since February – but with a different title and in an organisation set for reforms under which the Financial Regulator and Central Bank will be merged as the Government’s new Central Bank of Ireland Commission.

The structure of the commission is already taking shape.

Among the 250 amendments to the National Asset Management Agency (Nama) Bill are powers proposed by the Department of Finance to restructure the boards of the regulator and Central Bank to “enable a closer working relationship between them”.

The amendment will fast track the creation of a single board to oversee both the regulator and the Central Bank before the new legislation setting up the new commission is introduced in the Dáil before the end of the year.

Elderfield will take up his new position in January and, with Tony Grimes, the new head of central banking and former director general at the old Central Bank, will report directly to Honohan.

Elderfield has worked as both a regulator and for financial sector representative groups.

He worked at the Financial Services Authority, the UK banking regulator, for eight years.

He was also a representative for the London Investment Banking Association, and the International Swaps and Derivatives Association, the industry body in the over-the-counter derivatives market.

During his two years as head of the financial regulator in Bermuda – a financial centre which has an array of regulated entities that are similar to those in the IFSC – Elderfield has introduced a staggering level of reform to strengthen the island’s reputation for international insurance, banking and fund management.

He has been described as “astute” and “a workaholic”, which will leave him well positioned for the challenges of the new job. As recently as the start of this month, Elderfield was eyeing fresh opportunities for Bermuda to become a leading competitor for high-risk insurance investments known as catastrophe bonds and other types of specialist insurance assets by creating new regulations to monitor them.

One area he focused on during his time in Bermuda was the future regulation of insurance as he sought to prepare Bermuda for the expected changes that will come under the new Solvency 2 regulations in the EU from 2012.

The new regulations will involve massive changes to the capital requirements of insurers and force regulators to have a better understanding of the operational, underwriting and investment risks facing the firms they monitor.

“He has a great reputation and that firm but fair attitude,” said one Irish insurance industry executive who has met Elderfield and is familiar with the reforms he has introduced in Bermuda.

“He has a thorough knowledge and great degree of understanding of the insurance industry.

“He will really enhance the regulatory reputation of this country.”

Elderfield will take on the gamut of challenges facing financial regulation in Ireland, said the executive, and “understand the pressure points coming in future”.

A report by accountants Mazars into the Irish regulator finalised last February found that the organisation had too many administrative staff and not enough regulatory specialists, and that it had less of a focus on prudential supervision than other regulators.

Elderfield, a British citizen, strengthened regulation in Bermuda by significantly increasing staff numbers, expanding the BMA’s learning and development programme, and introducing a scoring system for management.

Given the shortcomings highlighted by Mazars, Elderfield will have to draw on years of experience and his strong international reputation to bolster a system of regulation that is taking the first much-needed steps to reform.