Former banker John Stanley Purcell should face the “highest penalties” for his part in regulatory breaches at Irish Nationwide Building Society, which collapsed owing around €6 billion, lawyers argued on Monday.
A long-running inquiry found that Mr Purcell, its former finance director, participated in breaches of regulations governing commercial loans by the society between 2004 and 2008.
Remy Farrell SC, for the Central Bank of Ireland’s enforcement division, told a hearing to consider what sanctions Mr Purcell should face, that the regulator believed the offences were at the “highest end of the scale”.
Penalties include a maximum fine of €500,000, a reprimand and a disqualification from working in financial services.
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Mr Farrell pointed out that the offences involved persistent and severe lapses in the oversight of the society’s lending policies and commercial loans.
While regulators agreed that Mr Purcell’s behaviour did not directly cause Irish Nationwide’s collapse into insolvency, their lawyer argued that his conduct should still be seen against that background.
“Even if it is for no other reason than it illustrates the risk that was run,” Mr Farrell noted.
Irish Nationwide lost €6 billion between 2008 and 2010, mostly on commercial loans. Taxpayers paid €5.4 billion to bail it out. The State then combined it with Anglo Irish Bank in the Irish Bank Resolution Corporation, which it liquidated in 2013.
The inquiry found that Irish Nationwide failed to process loan applications in line with its own policies, failed to obtain proper security for commercial loans, failed to get proper valuation reports on assets it was lending against, or to establish credit risk policies for loans entitling it to a share of property developers’ profits.
Mr Purcell argued that he was not guilty of breaching regulations and successfully defended 20 of 33 charges.
Brian Conroy SC, the former banker’s lawyer, told Monday’s hearing that Mr Purcell accepted the 13 findings against him.
However, he said that Mr Purcell wanted to clarify the facts relating to a finding that the building society failed to act on a recommendation by KPMG that it put in place policies for profit-sharing loans.
Mr Purcell noted that KPMG’s recommendations actually dealt with the lender’s keeping of records and files relating to these loans.
Mr Conroy told the hearing that Mr Purcell considered €100,000 an appropriate fine while the 71-year-old accepted the prospect of a long disqualification from working in financial services.
“He was not directly responsible for lending practices. Mr Purcell was not a lender and was not directly involved in lending,” the lawyer noted.
He argued that the banker’s offences were of omission, not commission, and that Mr Purcell agreed he should have done more to impose controls on the bank.
He stressed that the inquiry accepted that Mr Purcell had not acted dishonestly or recklessly nor had he benefitted directly from the building society’s high-risk lending policies.
Mr Conroy argued that the prospect of a €100,000 fine and the likelihood that Mr Purcell would never work in financial services again would be sufficient deterrent for any reasonable person now working in that business.
He also stressed that the inquiry had not established “any causative link” between Mr Purcell’s behaviour and Irish Nationwide’s collapse.
Mr Purcell is the last individual from five originally subject to the inquiry when it was established in 2015.
The Central Bank has settled with three others, former chairman Michael Walsh, one-time head of commercial lending Tom McMenamin and former head of UK commercial lending Gary McCollum.
It dropped its case against the society’s former long-standing managing director, Michael Fingleton, now 86, due to his ill-health.
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