AIB failed by charging its customers more than it was entitled to, and by not reporting this to the regulator as required by law, the chief executive of the Irish Financial Services Regulatory Authority (IFSRA) said yesterday.
Mr Liam O'Reilly, speaking at the publication of the first report into overcharging by AIB, said the issues involved were very serious, and undermined the trust of customers.
There were two issues involved, Mr O'Reilly said. One was a breach of the law arising from the bank charging fees greater than those notified to the regulator. The second was that there "seems to have been some sort of reluctance on behalf of the institution to come forward" in relation to the matter.
The report shows that in certain foreign exchange transactions, the bank was charging fees greater than the notified fees for a period of eight years. In relation to some other fees, customers were charged more than the fees which the bank had advertised for the product concerned.
Yesterday's report dealt with the extent of the problem of overcharging. A further report arising from an ongoing investigation will deal with how the overcharging occurred, and how the bank dealt with the issue.
Asked if he believed there had been a cover-up by the bank, Mr O'Reilly said: "We wouldn't be having an investigation if we didn't have grounds for believing there was some sort of cover up."
Mr O'Reilly commended the person within the bank who had come forward and first brought the matter to the attention of the regulator. This occurred on April 20th, 2004. On April 30th, 2004, officials from IFSRA held a scheduled meeting with AIB compliance officers, during which the IFSRA officials raised the allegations. On May 6th, AIB issued a statement confirming that an "error" had been made in certain foreign exchange transactions.
Mr O'Reilly said yesterday that he was satisfied with IFSRA's response to the May 20th approach. He said he had been in touch with the "whistleblower", and that the individual had not expressed any dissatisfaction with IFSRA's response.
He said that when the issue first emerged, IFSRA had said its priority was that the customers affected would be identified and compensated. The report showed that this was now going to happen in relation to the bulk of the customers affected. "This is a big win for the consumer." The repayment of €34.2 million by the bank was the biggest of such repayments, and would act as a deterrent and help focus the attention of other institutions.
Mr O'Reilly said he could not at this stage discuss the issue of how the situation had occurred. "People's rights must be protected," as must the ability of the institution to pursue the matter.
He said there was a need "to look at if there is culpability there, and then address the issue of penalties, and if they are available". He did not want to prejudge the issue. Meanwhile last night an IFSRA spokesman would not comment on AIB's claim in an advertisement in today's papers that " there is no evidence of a culture of overcharging" at the bank.
The ongoing inquiry is being conducted by accountants Deloitte with the oversight of the former comptroller & auditor general, Mr Lauri McDonnell. The same team produced yesterday's report. Mr O'Reilly said he hoped the investigation would be finalised soon.
"People have rights under the Constitution. The investigation is well advanced. We are talking about making sure that everyone has a right of reply."
A composite report might be published in the autumn which would deal with the issue of how overcharging occurred and "who is culpable", as well as with issues to do with AIB Investment Managers Ltd (AIBIM).
An account in AIBIM in the late 1980s and early 1990s was owned by a British Virgin Islands investment company called Faldor. The beneficiaries were five senior figures then with the bank, including the then chief executive Mr Gerry Scanlon.
If all the matters being investigated were not ready by the autumn, then IFSRA might proceed with a report on those issues which had been concluded.
Mr O'Reilly welcomed the decision of AIB to re-engage the US banking adviser Mr Eugene Ludwig and its introduction of new measures to encourage staff to bring difficulties to management's attention. He said IFSRA had been contacted by a number of "whistleblowers" at AIB, some on an anonymous basis. There was no evidence of whistleblowers being victimised by AIB.
He said it was an "unhealthy situation if an institution has to work on the basis of whistleblowers"and a culture was needed where an institution would want to identify problems.
He said that for IFRSA the main issue was not that problems would occasionally arise but rather how issues were confronted when they do arise.
Ms Mary O'Dea, consumer director with IFSRA, said there was one significant on-site inspection in AIB during the period covered by the report, but it "didn't pick up on" the fact that the foreign exchange fee being charged by AIB was double what had been notified to the regulator.
