Davy slapped with €4.1m fine for failure to supervise staff during Anglo bond sale

The Central Bank said it was sending out a message about the need for investment firms to strictly supervise potential conflicts of interest

Davy Stockbrokers on Dawson St. in Dublin. 1999Pic: Graham Hughes/Photocall Ireland! LOGOS 99

None of the 16 staff, including senior personnel, employed by Davy have been reprimanded by the firm despite the country's largest stockbroker having been slapped with a €4.1m fine, it appears.                         

The Central Bank imposed the fine -- the largest ever handed out for an Irish stockbroker -- after Davy failed to supervise a group of 16 of its own employees in their personal account dealings in the sale of Anglo Irish bonds for a client of the firm in late 2014. It marks a further stain on the financial services industry here. 

The Central Bank said it was sending out a message beyond Davy about the need for investment firms to strictly supervise potential conflicts of interest that can arise from personal account dealings by their staff. 

The fine was imposed after the regulator launched an investigation six years ago and came after “Davy prioritised facilitating an opportunity for the consortium to make a personal financial gain over ensuring that it was complying with its regulatory obligations”, the Central Bank said. The Central Bank did not identify the client or the nature of the deal Davy was working on, nor did it name what it called “the consortium” of 16 employees at Davy, including a group of senior executives, who were involved in the transaction. 

Asked by the Irish Examiner whether any of the 16 staff had been reprimanded by the firm, a spokesman for Davy said it couldn't comment beyond the statement from the Central Bank detailing the terms of the settlement and the fine. Davy hasn't issued a statement but in a note to staff made widely available it said that "while there are no findings of actual conflict of interest or customer loss" the firm regretted its "shortcomings".  

It emerged in recent years the Central Bank was investigating Davy over its involvement in the sale of the Anglo Irish bonds by property developer Patrick Kearney. Mr Kearney had alleged Davy sold the bonds at too low a price. The dispute was subsequently settled. The Central Bank said on Tuesday its investigation revealed weak controls by Davy in “conflicts of interest management and personal account dealing”. It said that the transaction was completed in November 2014, and a few months later, following publicity about the case, that Davy failed to disclose the full details to the Central Bank. 

The fine of €4.1m was imposed under the EU’s Markets in Financial Instruments Regulations, widely known as MiFid. It was reduced from €5.9m, or by 30%, under the settlement process. Davy was fined €50,000 for Mifid breaches in 2011. Before the latest breaches, the largest fine of €1.6m under Mifid had been imposed on Bank of Ireland Private Banking. 

The Central Bank also ruled that the group of 16 “circumvented” Davy’s framework over personal account dealing and conflicts of interest because the broker only learned about the case when the details became public in early 2015. 

“In permitting a group of employees to pursue a personal investment opportunity, conflicts of interest were not properly considered, the rules in place in relation to personal account dealing were easily sidestepped and Davy’s compliance function was kept in the dark,” said Seána Cunningham, the director of enforcement at the Central Bank.