OREANDA-NEWS. INBS has entered into a settlement agreement with the Central Bank. 

This follows the conclusion of the Central Bank’s most significant and extensive regulatory investigation to date.  The investigation commenced in 2010 and focussed on INBS’s commercial lending and credit risk management processes.  It related to INBS and certain persons who were concerned in its management between 1 August 2004 and 30 September 2008 (the “Relevant Period”).

On foot of the investigation, the Central Bank formally referred the case against INBS and the relevant individuals to Inquiry[i].  This is the first such referral under the Central Bank Act 1942 (as amended) (the “Act”).  This settlement concludes the case as against INBS.  The case against the relevant individuals will proceed to Inquiry.

As part of the settlement, INBS has admitted to having committed multiple breaches of financial services law and regulation, including persistent failure to comply with its own internal policies and procedures during the Relevant Period. As a result, the Central Bank has reprimanded INBS and imposed the maximum applicable fine of €5 million.  As INBS does not have any assets, it would not be in the public interest to pursue the collection of the fine and, accordingly, the Central Bank will not do so on this occasion.

The Director of Enforcement, Derville Rowland, has commented as follows:

“The collapse of INBS cost the Irish taxpayer €5.4bn.  It was a matter of significant public interest to ensure that a thorough investigation was carried out by the Central Bank to examine key issues arising within INBS between August 2004 and September 2008.

This investigation by the Central Bank is unparalleled in its degree of complexity and scale to any case which preceded it.  It has taken a number of years to bring this investigation to fruition and distil it into the case recently referred to Inquiry. 

INBS has admitted multiple failings at several levels of its commercial lending process, from operational lending, to credit review, its Credit, Provisions and Audit Committees all the way to its Board of Directors.  INBS’s admitted failings amount to a consistent and, at times, wholesale disregard for its own policies and procedures.

It is imperative that all regulated firms comply with financial services law and regulation and have robust systems and controls in place to continuously test and ensure compliance with their internal processes and controls.  It is not sufficient for firms merely to have documented policies and procedures; the implementation of and compliance with those policies and procedures must be rigorously and systematically monitored and reviewed.  Despite supervisory measures taken by the Financial Regulator at the time, INBS, by its own admission, failed in this regard.

Breaches of this nature are very serious and the Central Bank will continue to use the full extent of its Administrative Sanctions enforcement powers to seek to hold those responsible to account.  An Inquiry is due to be held by the Central Bank to establish whether certain persons who were concerned in the management of INBS participated in the commission of the breaches.  

The Central Bank will not hesitate to use the powers available to it to take the necessary enforcement action against firms with deficient compliance practices and against those responsible for the management of such firms.”

Background

The backdrop to this investigation was the deterioration of INBS’s financial stability, which ultimately led to its collapse.  INBS’s commercial loan book grew in value by 128% from around €3.6bn at the end of 2004 to around €8.2bn at the end of 2008.  Throughout this period, commercial lending made up the majority of INBS’s lending to its customers.  The commercial loan book represented 65% of the total value of the loan book at the end of 2004 and this had increased to 78% by the end of 2008.

Between 2008 and 2010, INBS suffered financial losses in excess of €6bn, primarily arising from the impairment of its loan book.  Under the National Asset Management Agency Scheme, the INBS loan book attracted the largest percentage discount of any of the participating institutions.  The cost to the Irish taxpayer for INBS was €5.4bn.