The Central Bank of Ireland‘s long-running inquiry into former senior figures at Irish Nationwide Building Society (INBS) has reached a total of €24.3 million, the regulator revealed on Wednesday, as the final subject in the case was sanctioned.
The inquiry panel fined INBS’s former finance director John Stanley Purcell (71), €130,000 for his role in a series of regulatory breaches at the lender before its collapse during the financial crisis, and disqualified him for a period of four years.
The Central Bank will now apply to the High Court to confirm the inquiry decision. Mr Purcell is not appealing the outcome.
Colm Kincaid, the Central Bank’s director of enforcement, insisted the cost over the past 15 years of running both its initial investigation, and the full public inquiry that followed it, was “absolutely” worth it.
He said it helped inform a complete change in the regulatory regime, including legislative changes that now make it much easier to hold finance executives to account for failings on their watch.
“The system of regulation we have today is a quantum step forward from the period that this inquiry relates to, in terms of the powers that we have, the resources we have, and the capabilities that we have,” Mr Kincaid said.
He said “the fruit” of the reforms have been borne out in how the Irish financial system has weathered a series of shocks in recent times, including Brexit, the Covid 19 pandemic and the cost-of-living crisis.
The final decision on Mr Purcell comes almost a year after the inquiry panel revealed it had made findings against the former executive.
Mr Purcell was the only remaining individual among five originally subject to the inquiry when it was established in 2015.
Since public hearings started in late 2017, the Central Bank has reached settlement agreements with three of the original five – former INBS chairman Michael Walsh; one-time head of commercial lending Tom McMenamin; and former head of UK commercial lending Gary McCollum. They were fined a total of €243,000, with the largest amount paid by Mr McCollum.
It dropped its case against the failed lender’s former long-standing managing director, Michael Fingleton, now 86, in December 2019, as he was in ill-health after a stroke. The High Court is currently hearing a civil case against Mr Fingleton brought by the Irish Bank Resolution Corporation (IBRC), which took over INBS’s assets in 2011, for alleged negligent mismanagement of the lender. He is not in a position to give evidence in this case.
The inquiry, which has held public hearings sporadically during its lifespan, was set up to look into seven sets of alleged regulatory breaches between July 2006 and September 2008, including that INBS allegedly failed to process loans in line with its own policies, failed to obtain property security for commercial loans, failed to get proper valuation reports on assets it was lending against or to establish credit risk policies for profit-share agreements with developers during the boom.
Between 2008 and 2010, INBS suffered financial losses in excess of €6 billion, primarily arising from the impairment of its commercial loan book. INBS cost taxpayers €5.4 billion to rescue during the financial crisis before its remains were folded in 2011 into IBRC, previously Anglo Irish Bank.
The inquiry found that between 2004 and 2008, Mr Purcell, as a board member of INBS, participated in breaches of financial services law by the lender relating to its commercial lending. The commercial loan book surged from €3.59 billion to €8.18 billion over the period, to account for almost 80 per cent of total loans.
It found that INBS was run in a “seriously deficient manner in relation to its commercial lending, credit risk and associated corporate governance”, according to a summary published by the regulator.
Profit-share agreements between INBS and property development borrowers eventually represented 65 per cent of INBS’s commercial loans.
Louise Gallagher, head of enforcement investigations at the regulator, said the inquiry found 12 instances where commercial loans, totalling €161 million, were granted without approval by INBS’s credit committee or board, as required.
She highlighted how the board often approved large volumes of loans in single meetings, which, she said, could not have allowed for proper scrutiny.
A board meeting in October 2006 sanctioned 38 loans totalling more than €500 million, while one the following month approved 39 loans of a similar gross value, according to the summary report.
The Central Bank has imposed more than €400 million of fines on firms and individuals over the past two decades. The bulk related to bank fines over the tracker mortgage scandal. Fines collected are passed to the Exchequer.
