Institution seeks to beef up regulatory powers

The Central Bank wants the power to directly apply to the High Court to have an administrator appointed to investment firms in danger of failure.

The move is one recommendation put forward by the institution as it aims to strengthen its powers regarding investment firms and the safety of client assets.

A beefing-up of regulatory powers is deemed necessary following the collapse of investment firm Custom House Capital (CHC) late last year, which was found to have misused €56m worth of clients’ funds.

A separate report — conducted by two of the regulator’s risk advisers — has judged that the Central Bank lacked the necessary power to deal with the case, short of revoking CHC’s authorisation, which could have caused “even greater potential loss to the underlying customers”.

Speaking yesterday, the financial regulator and deputy governor of the Central Bank, Matthew Elderfield, said good client asset regulation was “a critical protection” for investors.

“Where it hasn’t been effective — like Custom House Capital and Morrogh Stockbrokers, in Ireland, or MF Global in the US — the costs can be significant. We have set out a comprehensive plan to strengthen client asset protection through tougher supervision, better rules, stronger audits, assumption of new powers and more accountability for firms’ directors.”

The Central Bank’s powers are set to be improved by the pending Central Bank Supervision and Enforcement Bill, but the body is recommending a number of additions to the legislation.

To that end, the regulator is also looking for the establishment of a client asset specialist team which could operate a risk-based approach, with “pre-determined triggers for intervention”.

Also being sought is a revised approach to external audit reports, which would take the form of annual client asset examinations, with additional sporadic spot-checks.

The risk report into the most recent high-profile investment firm failure added: “The first lesson to be learned from the CHC case — as regards the protection of client assets — is that, where the Central Bank has lost confidence in the senior management of a firm and there are grounds to believe that client assets are at risk, the Central Bank must be able to apply to the court for the appointment of an administrator.”


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