Michael Noonan was warned that law was ‘too weak’ on honest disclosure by firms

Finance Minister Michael Noonan was warned by the ex-Central Bank governor Patrick Honohan that the law is too weak to prevent companies providing false or misleading information to regulators.

In a letter written last August but only made public now, Prof Honohan warned there were no consequences for people who provide false or misleading information to the bank. In the correspondence, Mr Honohan said the bank had been provided with “false or misleading information” by companies. He said this was often designed to cover “serious shortcomings or inadequacies”, but added there were “no legal consequences” that the Central Bank could take. He said this allowed “individuals to act without responsibility for their actions of lying”.

Prof Honohan called for the loophole to be closed.

However, it is understood the bank anticipates rules will be tightened this year with the introduction of new measures under Solvency II rules, which covers the insurance industry.

The letter to Mr Noonan also called for a change in legislation regarding the Central Bank Act to strengthen its powers further.

Fianna Fáil’s Michael McGrath said the loophole left Irish consumers exposed and called for action to be taken to ensure the public is not exposed

The Central Bank’s job is to police the financial sector and much of its work relies on seeking information from companies to ensure they are not breaking rules. But very little happens when those giving information are lying.

Last August, Prof Honohan wrote to Mr Noonan. Some of that correspondence was redacted. However, the full version has now been issued to Mr McGrath.

Meanwhile, a promise by Prof Honohan’s successor Philip Lane that controversial Central Bank mortgage rules, which have particularly affected first-time buyers, will be reviewed in the summer, has been welcomed by Mr Noonan.

Responding to comments made by Prof Lane, a spokesman for Mr Noonan said the review was timely, welcome and prudent.

“The minister has set out his position and given it is 12 months on, it makes obvious sense for a review to be conducted. The Central Bank as an independent body is best placed to decide what changes if any are required,” said Mr Noonan’s spokesman.

But Mr McGrath said there should be no delay to commencing the review as thousands of young couples who are currently priced out of the market are in desperate need of assistance: “Potential first-time buyers and those looking to trade up will be disappointed that a review of the rules is not likely to commence for six months. There is a very real risk that this will result in the already sluggish mortgage market grinding to a halt as potential buyers and sellers wait to see the impact of any new regulations.”

The Central Bank introduced the rules a year ago but Mr Noonan called on it last September to review mortgage caps for first-time homebuyers.

Despite announcing the review, in reality mortgage applications throughout the spring and early summer — the busiest time for house sales — will continue to be carried out under the current rules.

And with a review due to start in the summer, it is likely to be well into the autumn or even later before any changes might be made.