THE FINANCIAL services regulatory reforms announced by the Government yesterday have an obvious flaw. The problem which they are supposed to fix has never been properly elucidated. It is blindingly obvious that financial regulation in this State failed and that we are now living with the consequences. There is a general acceptance that the light touch, principles-based approach adopted here and in many other jurisdictions was not appropriate. But we are still very much in the dark as to exactly where, when and why faultlines appeared in Irish regulation.
A whole range of issues, from the performance of senior officials to the dealings of the regulator with government, have not been subject to any public scrutiny.
As a result of this high-handed approach, the proposed reforms lack both authority and popular support and the Government is open to the accusation that it is availing of the crisis to put back in place a regulatory structure that, while more to the liking of the Department of Finance, is also a proven failure.
The proposal to reintegrate the regulation of the financial services sector back into the Central Bank proper represents a return to the situation that pertained until the establishment of the quasiindependent Irish Financial Services Regulatory Authority in 2003. No doubt, and hopefully correctly, the Government will argue that the new structure, while superficially similar, is markedly different to the one that existed prior to 2003.
But it must be remembered that the impetus behind the failed experiment in 2003 was a number of glaring regulatory failures, including scandals at National Irish Bank, Ansbacher and other offshore tax evasion schemes. In all cases the Central Bank demonstrated a bias towards preserving the reputation of Irish banks and the stability of the system over the rights of the consumer or the taxpayer, with disastrous consequences.
Yesterday’s announcement – while no doubt timed to coincide with similar initiatives in the US and the EU leaders’ summit – was also silent on the issue of the regulatory policy that the new body will implement. This presumably reflects the predicament in which the Government finds itself.
As an EU member, our interests are closely aligned, in theory, with other euro-zone states such as France and Germany which are seeking a tougher, more co-ordinated approach to regulation to prevent a repeat of the credit crisis. However, the links between our financial services industry and the City of London and Wall Street pull us in the other direction, along with the UK, towards retaining control over regulation. Once again, the Government has failed to explain its thinking in this regard.
If the latest regulatory regime is to be credible – both in the eyes of the Irish public and the international markets – the Government needs to spell out in some detail where the previous system failed and specify how the new structure will address these problems in the wider European context.