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Central Bank

Central Bank to tell committee stronger regulatory framework needed in wake of Davy controversy

The scandal has led to fierce criticism of the firm, and its CEO resigned at the weekend.

A SENIOR CENTRAL Bank representative will tell an Oireachtas Committee today that Ireland needs a stronger regulatory framework to hold individuals accountable for breaches. 

Director General of Financial Conduct at the bank Derville Rowland will make her comments following a fine of €4.1 million against stockbrokers Davy after a probe found four breaches of market rules by the company between 2014 and 2016 in relation to a bond transaction.

The scandal has led to fierce criticism of the firm, and its CEO resigned at the weekend.

Ahead of a sovereign bond auction on Thursday, the National Treasury Management Agency (NTMA) yesterday withdrew Davy’s status as a primary dealer in Irish government bonds with immediate effect.

The NTMA said that Davy’s position as a dealer of government bonds was “potentially damaging” to Ireland’s reputation amid a growing scandal. 

“The reprimand and fine imposed on Davy reflects the serious regulatory breaches and aggravating factors in the investigation, including the firm’s lack of candour when first reporting the matter to the Central Bank,” Rowland says in her opening statement.

Rowland, who will attend along with Deputy Governor, Ed Sibley, will tell the committee that robust enforcement action is a critical component of the Central Bank’s work to protect consumers and investors. 

“It is a key part of the regulatory and supervisory toolkit,” she says in her statement.

“Enforcement action supports and runs alongside other supervisory interventions to help drive the remediation of risks and issues in the governance, risk management and control frameworks of the firms we supervise.”

She will also say that when the Central Bank concludes enforcement actions, it publishes detailed statements on the breaches, sanctions and reasons as it believes “sunlight is the best disinfectant”. 

“Publicised enforcement outcomes send a wider message to firms and individuals to drive improvements in compliance, behaviour and culture across the financial system,” she says in her statement.

Rowland will also tell the committee that the bank has concluded 141 enforcement actions, resulting in monetary penalties of over €128m.

She will also outline how the bank is currently conducting enforcement investigations against firms and individuals under the Administrative Sanctions Procedure and Fitness and Probity regime.

Her statement says that notwithstanding existing enforcement powers the bank has, it does believe that the regulatory framework requires “further strengthening with regard to individual accountability”.

“We regard the Individual Accountability Framework, including the introduction of conduct standards for individuals and the Senior Executive Accountability Regime (SEAR), as necessary enhancements to our supervisory and enforcement toolkit to support effective culture in regulated firms,” Rowland will say. 

Speaking to reporters this morning, Finance Minister Paschal Donohoe said the NTMA decision “reflects how seriously the State and the Government take this issue that has developed”. 

“It cuts, yet again, to the very heart of the standards we expect for those in positions of responsibility within financial services and the nature of the decision that was made by the NTMA reflects how seriously this issue has been taken by the Government and reflects the expectations that we have.”

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