THE CENTRAL BANK has disqualified a former member of the Irish Nationwide executive board from managing financial services for four years and fined him €130,000.

The penalty imposed on former financial director John Stanley Purcell is the result of an inquiry into the lending practices at Irish Nationwide Building Society (INBS) that began in 2015 and looked at the period between 2004 and 2008. 

The inquiry, which focused on five people in management positions at INBS, found that Purcell participated in systemic breaches of financial regulations that involved lending “large sums without relevant oversight”.

The 1,400-page report from the inquiry released today by the Central Bank details how INBS gave out commercial loans with little or no oversight and in many cases while ignoring the company’s own policies. 

In many cases, large commercial loans were given to companies after a single meeting. 

The report said there was “a pattern of systemic failures by INBS to implement or adhere to key policies”.

“This led to poor risk management, ineffective governance, deficient banking practices, and an overall culture of high-risk lending.”

“Where they had policies, they weren’t following them,” said the Central Bank’s head of enforcement Colm Kincaid. And on some types of loans, there were no policies, he said.  

The inquiry found a “litany of broken commitments”, “a culture of high-risk lending” and that concerns raised by the regulator during the period in question had been ignored.

The Central Bank must now apply to the High Court to seek approval for the penalty.

The bank had already been investigating INBS for five years prior to the launching of the inquiry in 2015. 

The Central Bank’s ability to carry out such an inquiry was challenged in the courts, which delayed the process and added to the cost.  

Through the course of the inquiry, the Central Bank settled with three of the executives in question and in 2019 the decision was made to permanently stay the inquiry into INBS’s former chief executive Michael Fingleton due to health reasons. 

Purcell was the only one who refused to settle and today Colm Kincaid said that the bank’s willingness to take the process all the way would serve as a deterrent to other would-be offenders in the financial sector. 

The total cost – including the initial five-year investigation, the ten-year inquiry and associated court costs – came to €24.2 million. It involved speaking to 33 witnesses and 105 of hearings. 

Kincaid was asked if the cost was worth it, to which he replied “absolutely”. 

Kincaid also outlined the ways the inquiry itself had led to reforms of how investigations are carried out, and how it led to regulatory changes following the financial crash of 2008. 

He said the system of regulation in place today is “a quantum step ahead” of where it was in 2008.

He also explained that the inquiry was “ploughing new territory” as one of the first of its kind, and faced a number of difficulties, including challenges in the courts.

“It is critical to public trust and confidence in financial services that there is a credible threat of such enforcement for firms and individuals who break the rules put in place to protect consumers and the stability of the financial system,” said Gabriel Maklouf, the governor of the Central Bank. 

Maklouf said the decision “shows the very serious impact failures at board level can have and provides valuable lessons to senior role holders in the financial services industry”