Whistleblower and Charlie Bird doing the bank regulator’s job

IN a previous incarnation, I worked briefly with AIB’s managing director in Ireland, Donal Forde. He’s the man who has been taking the public flak over the latest AIB fiasco, the accidental ripping-off of their foreign exchange customers.

In my experience of Forde, he was entirely honest and straightforward, indeed a very customer-focused businessman. I've no doubt whatsoever he was shocked to discover what his own bank had been up to, and determined to make amends.

I also worked with Dermot Gleeson, now chairman of AIB, when he was Attorney General, and I don't believe anyone could raise a question about his integrity.

But none of that alters the fact that for the fourth time, AIB has been caught with its pants down. There is something seriously wrong with a bank that malfunctions as often as this. And the fact that it was an anonymous whistleblower who exposed the latest scandal makes matters worse. A culture of compliance ought to be the first priority for a bank that gets it wrong as often as AIB has; in fact, all the evidence suggests that the bank's procedures are shoddy to the point of being negligent.

Firstly, it was AIB that was found to be humouring one of its more distinguished customers, one Charles J Haughey, to the extent that he was taking the bank for a ride. They knew it, he knew they knew it, and they were powerless to do anything about it. In the end, AIB had to write off a considerable amount of a debt he accrued to support his ostentatious lifestyle.

Next, AIB was discovered by the DIRT inquiry to have been the worst offenders in that scandal, providing more bogus non-resident accounts than any other bank. And wasn't it in his local AIB branch that Pádraig Flynn lodged the £50,000 he was given by Tom Gilmartin, before the same Pee Flynn had the neck to sign a false declaration enabling him to shovel the money offshore?

After that, of course, the bank was itself the victim of a major fraud when one of its own traders did away with nearly $700 million. The independent investigation into that fiasco, conducted by a well-known American banker, said that "incompetence and lack of supervision at a gross level" was responsible for what had happened.

Apart from the bold Mr Rusnak and some of his immediate colleagues, however, no heads rolled on that occasion, just as none had rolled after the DIRT inquiry.

And what is going to happen this time? AIB made a lot of profit over the years by over-charging its customers in one small area of activity apparently due to a software error.

Are all their charges going back over all that time now going to be audited? Will someone from the regulatory authority kick the door down in Ballsbridge, demanding all the files, looking for proof that there was no overcharging in other areas of retail banking - areas that would involve an awful lot more customers? Will senior management be given the third degree? Is this the tip of the iceberg? The answer to most of those questions, I'm afraid, is no.

If the overcharging in the foreign exchange area is the tip of the iceberg, the water level is if going to have to drop before we see any more of the iceberg. Because there is no regulator with the power to impose charges, monitor compliance with those charges, investigate proactively to see if there are breaches, and punish anyone found guilty of ripping off the consumer. Under consumer law as it stands, a bank that says it is charging one rate and then charges another is guilty of an offence but it still sets its own rates, and doesn't have to justify them to anyone.

What does all this mean? It means that we have a regulatory structure that, in all its essences, is based on the belief that all bankers are gentlemen, and would never, ever, consider doing anything untoward. Most bankers are, of course, honest business people operating in a tough environment. But there is too much evidence of the need for strong regulation for that evidence to be ignored any longer.

THE existing regulator, the Irish Financial Services Regulatory Authority (IFSRA), is relatively new. It took Charlie McCreevy and Mary Harney most of their first term in office to agree its terms of reference and structure. There was a turf war between their two departments, the Central Bank was unwilling to cede any of its authority, and the system they have developed is a bit of a hybrid. They have been lucky in their first major controversy.

The fact that the AIB whistleblower went to the regulator first, and then to Charlie Bird in RTE, forced AIB to come out with its hands up. That has enabled IFSRA (wouldn't it be a start if these bodies got names we can pronounce?) to sound very tough in all its public utterances.

But how tough is it? It's not the FBI, that's for sure. Take this piece of gobbledygook from IFSRA's strategic plan, for instance. "We believe that a mainly principles-based supervisory system will deliver a good balance between having a competitive industry and requiring high entry standards for doing business. A principles-based approach, with technical rules applied as appropriate, encourages adherence to the spirit of sound regulatory standards, without being overly bureaucratic. This represents the appropriate supervisory model for Ireland."

The IFSRA goes on to say that it's not part of its brief to be involved in day-to-day management. It expects the financial institutions it supervises to put the appropriate mechanisms and procedures in place to ensure full compliance. The bottom line, the IFSRA says is that it will check that in every financial institution "there are people of competence and integrity at every level to ensure that such systems are in place."

God bless such innocence, is all I can say. Whenever you dig into the really powerful institutions in Ireland, you always come to the same bottom line. We might talk about regulation, we might think there are regulators in place, but they always seem to have a few teeth missing.

They're usually pretty good at producing glossy brochures and maintaining nifty websites, and they can whip up a public information and awareness programme at the drop of a hat.

But there used to be a time in Ireland when "operation of the market" and "the public interest" meant different things. In those days, people found guilty were punished. Nowadays, because the public interest and free market operations mean exactly the same thing, at least in the eyes of all those who rule us, regulation is all but meaningless.

Thank God for whistleblowers and Charlie Bird.