Consumers pay for poor regulation

CONSUMERS have lost substantial sums of money because the system of financial regulation has not functioned adequately.

Also the Financial Regulator’s failure to control the property market bubble magnified the economic crisis in Ireland.

This is according to a report from the Financial Services Consultative Consumer Panel, which is responsible for monitoring the performance of the Financial Regulator.

The panel said losses suffered by consumers arose due to “faulty prudential activity”.

It added it is “unclear as to why the regulator did not move to dampen the bubble at an earlier stage” by requiring banks to set aside more capital for riskier products. It said interest only mortgages enabled consumers to buy property they couldn’t afford and may have contributed to the house price bubble.

“Such products have the potential to cause systemic risk as they are the equivalent of a deferred liability on the consumer balance sheet,” it said.

“This shows the indispensable need to scrutinise new products in financial markets.”

The panel, comprising consumer activists and experts, said Ireland should look to other member states within the eurozone that do not appear to be suffering as badly as Ireland in the financial crisis for new models of financial regulation.

“We may yet need to ask our fellow member states to bail out our banking system and we should consider following their more prudent approach to banking regulation,” it said.

It also said there should be a requirement to have any wrong doing by the Financial Regulator investigated by an external authority.