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Friday, 29th March 2024
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Irish financial regulation - it needs change but it’s not broken Back  
James Deeny, the outgoing chairman of the Financial Services Consultative Industry Panel, says that creating a media and political feeding frenzy will create ‘untold damage to our Irish regulatory system.’
We are in danger with the current media and political feeding frenzy of creating untold damage to our Irish regulatory system. It is in the national interest that the overall competency and reputation of the Irish Financial Services Regulatory Authority (Financial Regulator) is supported.

Yes, there are a number of areas where change is urgently required; however, it has to be recognised that since it was set up in 2004 the Financial Regulator has achieved significant progress with its mandate. It is fundamentally the case that the Financial Regulator has a highly skilled component of core staff.

It should be remembered that the main driver in the creation of the Financial Regulator was a consumer mandate and there is no question that the Financial Regulator has significantly raised the bar as regards the provision of retail financial services in Ireland. It is the case that the regulatory standards implemented by the Financial Regulator in this area are among the best in the world. The Irish consumer of retail financial services have benefited greatly from what has been achieved. Initially, there were some legislative gaps such as the regulation of domestic sub prime lending, however, these are either now in place or in the process of being brought under the remit of the Financial Regulator.

The regulation of domestic and international financial service providers in Ireland is a major task. It involves the regulation of over 5300 financial entities and 5000 funds, and in general the Financial Regulator has done a good job. This is no easy job involving as it does businesses as diverse as banking, insurance and funds. Yes, there have been IFSC entities that have failed or run into difficulty but that is the real world and will always be the case. The IFSC could not have achieved the scale and international standing it has without the effective work of the Financial Regulator. Looking to the future, the IFSC faces major challenges and if it is to meet these and sustain this vital business for Ireland, it needs a responsive and effective regulator to work with and not one operating under a political and media cloud.

How do we move forward? Over the last three years the Financial Services Consultative Industry Panel (the Panel) which was established under the 2004 legislation to provide advice to the Financial Regulator, identified a number of weaknesses with the creation of the Financial Regulator as effectively a division of the Central Bank of Ireland. Under the legislation, IT and HR functions of the Financial Regulator are outsourced to the Central Bank.

In its 2007 Annual Report the Panel noted that “By definition, there are fundamental differences in the type of IT and HR environments needed in the Central Bank and the Financial Regulator. The Central Bank is a mature organisation concerned with critical national and macro-economic issues. The Financial Regulator is a young organisation with a duel consumer and regulatory mandate in what is a unique and complex market. For both operations to be effective, their respective IT and HR platforms and policies must, by definition, be fundamentally different.

The Panel has long held the view that the senior management of the Financial Regulator should have more direct management and control over its IT and HR functions if it is to meet the challenges it faces”.

Unfortunately this perception was not well understood within the combined structure of the Central Bank / Financial Regulator and is an approach which needs to be taken on board in the new regulatory landscape we are facing into.

Other key points made by the Panel in the past were the need for a dedicated Strategy Unit within the Financial Regulator to monitor international and domestic financial market developments and the associated risks with the objective of feeding these into the regulatory process. The Financial Regulator has been vilified for not identifying and acting on the growth and concentrations that took place with property lending by the Irish domestic banks over the last four years. At the same time the Central Bank is itself responsible for national financial stability and should also share accountability for the failure to make this call.

The Panel also advocated much more secondments into the Financial Regulator from the professions on a contract basis. The senior management of the Financial Regulator has historically been drawn largely from a Central Bank gene pool. There is an increasing recognition of the need to bring outside expertise into the management structure of the Financial Regulator and that this is seen to be the case.

There is little that is new in what the Panel suggested as it is commonly found in other major regulators.
The Financial Regulator is vital to the success of the domestic and international financial services industry in Ireland. Despite all the negative publicity it continues to diligently carry out its responsibilities. The Government and the Central Bank / Financial Regulator need space to make the necessary changes. The way forward has to be a review of the structure of the organisation created in 2004, and the taking on board of the kind of recommendations suggested above rather than unproductive grandstanding by some uninformed politicians and media.

James Deeny is the outgoing Chairman of the Financial Services Consultative Industry Panel. He is the former Chief Executive of HSBC Ireland, a director of several IFSC companies and Senior Advisor, Financial Services to Invest Northern Ireland. This article is written in a personal capacity.

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