AIB admits 'serious breach of law' in FX charges

AIB today admitted it does not yet know why it charged customers the wrong foreign exchange rates and why the problem persisted for eight years.

At AIB's group headquarters in Ballsbridge in Dublin, the company chairman, Mr Dermot Gleeson said the bank's failure to notify the Irish Financial Services Regulatory Authority (IFSRA) about its foreign exchange rate charges "was a clear beach of the law and a serious matter".

A progress report from the Irish Financial Services Regulatory Authority (IFSRA) today found that AIB will repay €25.6 million to customers charged illegal foreign exchange charges and €8.1 million to almost 90,000 customers who were overcharged in 24 separate categories.

More than three million customers were affected. AIB said it is committed to repaying the money as soon as possible and apologised for the overcharging.

AIB also said that strictly speaking it had not overcharged its foreign exchange customers because they were charged market competitive rates, despite these rates being higher than those notified to the regulator.

IFSRA and an independent team of investigators are now investigating how these errors came to light, how they were handled and why they persisted for so long. AIB said today it has no date for when this report will be completed.

Responding to the detail of today's progress report, Mr Gleeson said the issue was a breach of trust between AIB and its customers and between the bank and the regulator.

He said once the foreign exchange rate discrepancy came to light, the bank initiated a widespread trawl of regulated and non regulated charges. This had identified "errors and overcharging in some instances" leading to an estimated repayment of over €8 million to customers.

"The trust and confidence of our own customers is fundamental to our business and where it is damaged, I am intent on doing everything possible to rebuild and repair it," Mr Gleeson said.

Mr Michael Buckley, AIB chief executive, said of particular concern to him was that the AIB whistle-blower who brought the foreign exchange issue to the attention of the regulator and subsequently the media had not felt safe bringing the matter to someone within the bank.

"That is something that does really concern me. Part of my agenda is to make sure that people feel free to speak their mind without retribution."

AIB today announced the establishment of a confidential helpline in the UK for staff who wish to raise issues without contacting bank management. The operators of this service will report directly to senior AIB management.

Mr Buckley also denied that there were difficulties with AIB's corporate culture. External expert research found that AIB possessed a strong corporate culture although it noted staff in the bank have a culture of self-dependency.

"We still need to wait and see whether there was culpability in the lack of notification to our regulator of charges we were actually making," Mr Buckley added.

He also denied that the problem was widespread saying that over the 8 year period in question only 4 per cent of AIB's 1.5 million customers were affected. He added that there was no evidence that AIB had lost customers over the scandal.

Mr Eugene Ludwig, managing partner of the Promontory Group, has been appointed by AIB to advise the bank on control, risk, compliance and governance issues arising from the scandal. Mr Ludwig led the investigation into the Allfirst fraud in 2002.

AIB also undertook today to commission an independent audit of fees and charges for a sample of customers. The results of this will be reported to the regulator.

The bank has allocated €50 million to cover the repayments and the cost of its own internal investigation.

AIB shares, which have so far shrugged off recent tribulations, were up 1.6 per cent at  €12.40 in Dublin at 2.30pm.