Not a bad opener but the main feature has yet to come

In the good old days, cinemas usually preceded their main feature with a second, shorter film.

Yesterday's report from the Irish Financial Services Regulatory Authority (IFSRA) was a bit like that. It was the short presentation prior to the one we all want to see.

The report outlines how AIB has been involved in overcharging customers, and that it is to repay €34.2 million to those affected. The sum is a large one, the largest ever such repayment by a bank, but it arose over an eight-year period, and is not significant in terms of AIB's turnover or profits.

The main issues now for AIB are: whether anyone within the bank consciously set out to take money from its customers that it was not entitled to take; whether anyone, having discovered a mistake that was having that effect, did nothing about it; or whether anyone, having discovered that AIB was imposing charges it should not have imposed, sought to hide that fact from the regulator.

The answers to these questions will be given in the autumn in a second IFSRA report. Names may be named and punishments, if appropriate, may be dished out by the bank.

The chairman of AIB, Mr Dermot Gleeson, said that, in fact, AIB had not overcharged its foreign exchange customers in the sense that it had not charged them more than it had advertised it would charge.

Nor had it charged its customers more than its competitor banks were charging.

What it did do was charge its customers more than the amount it had notified to the regulator. This was wrong, and he said he and the bank were sorry.

The report shows the amount involved was €25.6 million, including interest. The period involved is September 1995 to April 2004, and the number of transactions involved was approximately three million.

The report is the work of investigators from Deloitte and it is being overseen by former comptroller & auditor general Mr Lauri McDonnell.

The team found that, as well as foreign exchange charges, there were other charges imposed that were greater than the amount notified to the regulator. These involved €0.5 million, including interest.

Meanwhile, IFSRA and the bank were looking at a related but separate issue. This involved instances where the bank had charged its customers more than it had agreed with its customers. In other words, to use Mr Gleeson's analogy, more than was in the shop window.

The total involved in this area is €8.1 million, including interest. The bank is required by law to return this money, and will. It is not required by law to return the foreign exchange "overcharges" but is going to anyway.

Mr Gleeson said that, because it was going to give money back to the affected foreign exchange customers, even though they had been charged the advertised market rate, they were in fact, in retrospect, getting a discount.

The rate notified to the regulator was 0.5 per cent, and the amount charged was 1 per cent. Customers, therefore, are getting a 50 per cent discount on the market rate. The largest individual case, €40,000, involves a commercial customer.

There was a lot of talk yesterday about the internal culture in AIB, and employees being reluctant to come forward when they spot an issue they were concerned about. AIB announced a number of initiatives designed to encourage "whistleblowing".

Mr Gleeson and the group chief executive, Mr Michael Buckley, said they regretted the fact that someone in the bank had gone to IFSRA and RTÉ with concerns about foreign exchange charges rather than to senior management.

The chief executive of IFSRA, Mr Liam O'Reilly, knows who the AIB whistleblower is. Mr Gleeson and Mr Buckley said yesterday that the person had not made himself or herself known to them.

As this whole debacle will cost AIB approximately €50 million when its costs are included, the whistleblower's discretion may be understandable.

The whistleblower contacted IFSRA on April 20th. The matter was raised by IFSRA with AIB on April 30th during a scheduled meeting with compliance officers.

On May 5th, RTÉ was contacted by the whistleblower, and submitted queries to IFSRA and AIB. The following day AIB confirmed to IFSRA, for the first time, that an error had been made in relation to the margins being applied to certain foreign exchange transactions. It also issued a public statement.

It also seems that AIB set about correcting its foreign exchange margins prior to April 20th, in other words it set about rectifying its mistake without notifying IFSRA.

All of these factors create concerns about the robustness of IFSRA's initial response and AIB's current attitude towards its regulator.

Mr Buckley, for his part, said yesterday that he first learned about the foreign exchange issue on May 3rd or 4th.

Of all the issues confronting AIB, ones to do with AIB Investment Managers Ltd (AIBIM) may prove to be the most difficult. The issues are historical but could paint the bank in a very bad light indeed.

AIBIM had an account in the name of a British Virgin Islands company Faldor, the beneficiaries of which were senior executives within the bank.

The then chief executive, Mr Gerry Scanlon, has said his money was put into the account without his knowledge. Another beneficiary, Mr Roy Douglas, has said he was invited to invest with AIBIM and considered it a benefit that came with his position.

There were tax issues to do with the account. Revenue is looking into the matter.

This issue is being looked at by AIB and IFSRA, working together, and Mr O'Reilly said a report on the matter was likely in the autumn. It may form part of a composite report that will also deal with the issue of overcharging and culpability.

Lastly, in fairness to AIB, it should be said it has about 625 charges it must notify to the regulator. It has discovered difficulties with eight.