Statement by Authority


The Committee established by the Authority on Saturday 20 December 2008 to undertake an urgent review of directors' loans at Anglo Irish Bank and the regulatory response has today (Friday 9 January 2009) delivered its report to the Authority. The Authority has accepted the report.

The essential task of the Committee was to look within the organisation at two issues: when the information about these loans was obtained by the organisation, and how the information was communicated and followed up by way of response. It did not include an examination of any other issues relating to Anglo Irish Bank, which are the subject of a separate and ongoing investigation.

The Authority is subject to strict obligations of confidentiality under legislation and has been legally advised that it may not publish the Committee's Report. Nevertheless, it is conscious in the interests of transparency and public interest in this issue to outline the essence of the main elements of the Report.


In summary, in relation to dealing with the issue of directors' loans in Anglo Irish Bank, the Committee concluded that there was a breakdown in terms of internal communications and process and in the regulatory follow-up and response of the organisation. This resulted in a failure to take appropriate and timely actions in relation to what was a serious matter and to escalate the matter to the Authority.

In particular, the Committee concluded that:

* if the information available from Anglo quarterly returns had been monitored more comprehensively the issue of directors' loans could have been identified much earlier from the returns dealing with Large Exposures;

* once the matter of directors' loans had been identified it was pursued actively by the Banking Supervision Department (BSD). Two meetings took place between BSD and Anglo;

* the organisation did not use its discretion under its legislation to alert the Director of Corporate Enforcement at the initial stages;

* the matter was not pursued with Irish Nationwide at the time. It is now being pursued under the separate review initiated by the Authority;

* the discussions with Anglo were not broadened out to include Anglo's Head of Internal Audit, the Chair of the Audit Committee and the external auditors;

* while concerns persisted in BSD the matter was not pursued partly because a letter from Anglo went missing and partly because of the pressure on officials from the unfolding of liquidity problems in financial markets and in individual institutions;

* the Committee noted that while the pressures referred to above did not explain what occurred they are an essential part of the background;

* the issue did not surface again internally, even in Autumn 2008, when major stability and strategic issues were being addressed by the authorities including the Government;

* in relation to the particular issue of whether this matter had been mentioned to the Prudential Director and Chief Executive after a wider meeting had concluded in January 2008, the Committee was impressed with the coherence, clarity and belief in their stated recollections of the people concerned and their integrity. Nevertheless, the evidence presented to the Committee on this issue could not be reconciled by the Committee. There is no suggestion from any party that any communication - verbal or written - on this issue was made to either the Prudential Director or Chief Executive in the period (subsequent to January) to December 2008.


In its concluding remarks, the Committee noted that it had been greatly impressed by the quality, dedication, commitment and strong work ethic as well as the integrity of the officials with whom they engaged. The Committee noted the pressures that the staff had faced since the onset of the crisis in the global financial system in August 2007 and noted issues with staffing requirements. The Committee noted that the adequacy of existing resources would need to be kept under review particularly where modification of the approach to regulation and more intensive supervision would require more staff.

The Committee observed that the system of regulation that operated in Ireland was highly regarded internationally. However, the events of 2007 and 2008 in the financial environment globally pointed to serious inadequacies in systems of regulation operating across the world. Ireland is no exception and a much more intensive type of regulation has been introduced here under the Government Guarantee Scheme and this position is developing all the time.

The Authority notes and accepts the recommendations of the Committee and is committed to implementing them in full. These are:

* The review of our strategic regulatory approach in the light of developments in 2007 and 2008, to which the Authority is already committed, should be advanced as quickly as possible. The review should ensure that the organisation meets its statutory mandate and responds to the changed regulatory environment and to EU and international developments in financial regulation.

* The staffing requirements for the organisation should be reviewed on the basis of both the strategy review and also of the outcome of the work being undertaken by external consultants for the Authority, specifically the Business Process Review and Benchmarking against comparator financial regulators and other similar businesses, which is expected to be concluded shortly.

* Any changes recommended by these consultants in the organisational structure and reporting lines within the Financial Regulator should be examined and if considered appropriate acted upon by the Authority as a matter of urgency.

* While no process can eliminate the need for the exercise of good judgement by officials, existing internal communication and escalation procedures and procedural manuals should be reviewed taking account of the lessons to be learned from this report and the ongoing separate review of directors' loans initiated by the Authority.

* Filing and document management and tracking arrangements should be improved.

* The review instigated by the Authority to determine the treatment of directors' loans in all institutions covered by the Government Guarantee Scheme should be completed at an early date.

* Loans to directors should be examined in greater detail, especially to ensure that loans to any business in which a director has a major interest (defined as 10 per cent or more of the shares or voting rights) are being included in returns to the Financial Regulator.

* Arrangements should be made to ensure more effective monitoring of the more important prudential returns, including those for loans to directors, with on-line submission and built-in data validation and checking processes A progress report should be made to the Authority by end-February 2009.