‘Rigorous’ financial regulation promised

THE regulatory framework for Irish-based financial services firms is to be completely overhauled in the coming months, with the current “one size fits all” model being replaced with a “more rigorous” case by case approach.

In his first public speech since being appointed last October, the Central Bank’s new head of financial regulation, Matthew Elderfield, said: “A risk-based model means that we will not have a ‘one size fits all’ approach. We need to be balanced and proportionate, depending on the risk of the sector or firm in question.

“While we do need to improve our level of engagement across the board, a systemically important bank should expect a much more intrusive approach than a fund or wholesale insurance company with a lower risk profile.

“We need to insist that the biggest and riskiest firms manage themselves better and that firms and their management are held more accountable for their actions,” he added, while addressing the Leinster Society of Chartered Accountants annual lunch in Dublin, yesterday.

Mr Elderfield – who previously headed the Bermuda Monetary Authority – added that the office of the regulator needs “a substantial increase in resources” to help it build its new regulatory model, which will also include a dedicated division dealing with enforcement matters. He said assessing the post-NAMA exposures of the banks is an immediate priority.

“The recapitalisation exercise will help draw a line under the banking crisis and help get credit flowing again. It isn’t for the benefit of the banks or their management, but is an essential step for the recovery of the finances of Irish business and Irish households by improving confidence in the economy.”

In a broadside warning to companies, Mr Elderfield said: “High impact firms and those with a poor track record should not expect to receive the benefit of the doubt from me or my staff when the best approach to addressing a risk is a point of contention between us. We’ll have an open and engaged dialogue with a firm’s senior management. But, if we remain unconvinced by management’s plans, we will be prepared to substitute our prudential judgement for their commercial one and say: ‘just do it’.”

Ahead of the two pending reports into the banking crisis here – one of which will be partly carried out by the Central Bank’s governor, Patrick Honohan – Mr Elderfield said: “It is already clear that we need to undertake a fundamental overhaul of the regulatory model for financial services in Ireland.”

He also attacked failings in corporate governance levels and announced that the soon to be expanded Central Bank will be proposing a series of measures aimed at improving governance standards and setting out guidelines on remuneration and risk-taking levels among financial institutions.

“Many of these will extend beyond the banking sector to other categories of financial services firms, but will be developed – in line with our risk-based approach – in a proportionate manner,” he said.