Regulator ‘to blame for financial turmoil’

THE failure of the Financial Regulator to ensure sound financial services is to blame for homeowners being in negative equity, shareholders losing out and pension funds diving, according to a consumer watchdog.

The hard-hitting report of the Government-appointed Consultative Consumer Panel calls for an explanation from the Financial Regulator of what went wrong with the regulatory system and what needs to change from its perspective. The panel also said it would like to see a report from an independent authority on what went wrong with Irish financial regulation and why.

It said the regulator had failed in its primary purpose to help consumers make informed financial decisions in a safe and fair market, and to foster sound dynamic financial institutions in Ireland. The report also warned that the institutional reforms announced so far of the financial services sector and how it is regulated will not be sufficient to avert a similar crisis in the future.

“The Financial Regulator’s failure to ensure sound financial services providers has hurt consumers hard. They have suffered from negative equity on their homes, falling share prices, poorer returns on pension funds and the lack of availability of credit,” the report said.

“The cost of bailing out the banking system has contributed to rising unemployment, wage and social welfare cuts and higher tax rates. Those negative effects have been only partially offset by lower mortgage rates, adjusted asset prices and higher deposit rates,” it said.

While acknowledging the trigger for the collapse of Ireland’s financial services was the international credit crunch, the panel found that Irish banks were particularly hard hit because they were over-exposed to the property market.

“In Ireland, consumers have been particularly hard hit by the failure of the Financial Regulator to adequately intervene to deflate a highly visible property bubble, including the failure to clamp down on risky products such as 100% mortgages, interest-only mortgages and mortgages with longer terms, some as much as 40 years,” it said.

“The Financial Regulator also failed to rein in speculative lending by banks to the property sector leaving the banking system highly vulnerable to an external shock,” the report said.

The panel’s report said it is not “being wise after the event”, as it claims it had sought a meeting with the Financial Regulator’s prudential executives to report on their work, but their requests were ignored at a time when the crisis was imminent.

“The then chief executive Pat Neary assured the panel that the ‘banks were solid, and subject to weekly reviews with the regulator at the highest level’,” the report said.