Record EUR100m Fine Imposed by Central Bank of Ireland

The Central Bank of Ireland (CBI) has imposed a record-level fine of just over EUR100m on the Bank of Ireland (BoI). This fine represents the fifth imposed on a bank for regulatory breaches associated with the long-running CBI Tracker Mortgage Investigation.

Grounds for Imposition of Fine on BoI

This fine has been imposed upon Bank of Ireland in respect of 81 separate regulatory breaches impacting 15,910 customer accounts, spanning an 18-year period, and which involved breaches of certain aspects of:

• European Communities (Unfair Terms in Consumer Contracts) Regulations 1995,
• Code of Practice for Credit Institutions 2001, and
• Consumer Protection Codes 2006 and 2012.

In brief terms, the key findings from the investigation are as follows:

• BoI provided unclear contractual documents to its customers.
• BoI failed to interpret its unclear contractual documents in customers’ best interests.
• BoI failed to warn customers about the consequences of decisions relating to their mortgage.
• BoI implemented an unfair complaints handling practice in respect of customers.
• BoI’s deficient mortgage systems and controls, contributed to a significant number of operational errors.
• BoI wrongfully excluded customers from the protections of the Tracker Mortgage Examination.

Prevalence of Tracker Mortgage Related Fines in List of Top Ten CBI Fines

Of the ten highest penalties imposed by the CBI since 2016, six of those have been imposed for contraventions linked to the tracker mortgage investigation.

Fines imposed on banks as a result of tracker mortgage contraventions have yielded in the region of EUR284m for the Exchequer.

It is important to bear in mind that the level of fines imposed do not reflect the full cost of these contraventions to the regulated firms concerned, as collectively they have also been required to spend several hundred million Euro in providing redress and compensation to affected customers.

Table: Top 10 Penalties Imposed by CBI (2016 – 2022)

Background to Tracker Mortgage Examination

In December 2015, the CBI initiated it’s industry-wide examination of tracker mortgage related issues, termed Tracker Mortgage Examination (TME). The TME required all lenders to examine:

• the extent to which they met their contractual obligations to their customers,
• their compliance with their obligations under relevant consumer protection regulations in their dealings with their customers,
• their communications with customers in respect of these matters.

Ultimately, at the direction of the CBI, the banks were required to provide redress and compensation to all affected customers.

The imposition of this penalty on BoI marks the completion of the final in a series of firm-level investigations concerning tracker mortgage related issues.

CBI and Importance of Enforcement as a Supervisory Tool

The TME has been one of the longest-running and resource intensive examinations embarked upon the by the CBI. In addition to costing banks hundred million Euro in redress and compensation, it has resulted in the imposition of a series of record level penalties at the behest of the Enforcement Division of the CBI.

Shortly after his appointment as Head of Financial Regulation at the CBI, Matthew Elderfield made his objectives vey plain, when he said: “I intend to implement a framework of assertive risk-based regulation underpinned by the credible threat of enforcement. We need to insist that the biggest and riskiest firms manage themselves better and that firms and their management are held more accountable for their actions.” (11 Mar 2010) He expanded on the importance of the deterrent effect of enforcement in a later address, where he said: “The broader benefit, which supports supervision, is the deterrent effect of enforcement. If firms think there is a credible risk that their own non-compliance with regulatory standards would lead to sanctions from the Central Bank, then that provides a very powerful motivation to boards of directors and senior management teams to ensure a high standard of conduct.” (11 Dec 2012)

With a succession of very substantial fines having been imposed in recent years, few can dispute that the credible threat of enforcement has been firmly established within the financial services sector in Ireland. In case anyone is in doubt, in the context of the announcement of the BoI fine, the CBI’s Director of Enforcement and Anti-Money Laundering, Seána Cunningham has reiterated the importance of enforcement as a supervisory tool: “[W]e continue in our unwavering commitment to hold regulated firms and individuals accountable where there are breaches of regulatory requirements and standards.”

We venture to suggest that the imposition of this EUR100m penalty on BoI represents the high-water mark of CBI fines, and it is likely to be quite some time before we see another CBI fine of this magnitude. Of course, another logical conclusion to draw from the drawing to a close of the enforcement phase of penalties associated with the TME is that it releases resources within the Enforcement Division at CBI to now turn their attention to the scrutiny of regulatory contraventions across the financial services sector.