Former management figures in Irish Nationwide Building Society (INBS) each face the prospect of up to €500,000 in fines as the Central Bank embarks on a new inquiry into their role in the lender’s collapse.

The examination follows a five-year investigation into INBS’s lending practices by the Central Bank, which criticised malpractices in the society whose demise ultimately cost taxpayers €5.4 billion.

The latest investigation, by a three-person panel chaired by solicitor Marian Shanley, centres on the role of individuals in breaches and failings.

It is understood this work focuses on fewer than 10 people but the Central Bank would not name the individuals or say whether they were involved in the executive management or board of INBS – or both.

This is a regulatory inquiry, not a criminal investigation. Individuals against whom any adverse findings are made could be fined up to €500,000.

Non-monetary penalties include caution or reprimand, disqualification from practice, a direction to cease a prescribed contravention or a direction to pay to the Central Bank all or part of the costs of the inquiry.

Lending problems

The Central Bank initiated the original investigation in 2010 when, according to a spokeswoman, it became aware of problems in commercial lending by INBS and its risk-management process.

The investigation centres on practices within INBS between 2004 and 2008. The society’s expanding business was overseen by the Irish Financial Services Regulatory Authority, which was scrapped when the Central Bank was overhauled in the wake of the crash.

The inquiry uncovered serious shortcomings within INBS on the application, approval and monitoring of loans and on security and valuations. It also criticised failures in respect of the credit committee, board reporting obligations and the lack of a formal risk policy for profit-share loan deals.

“INBS has admitted multiple failings at several levels of its commercial lending process, from operational lending, to credit review, its credit, provisions and audit committees all the way to its board of directors,” said Derville Rowland, Central Bank director of enforcement. “INBS’s admitted failings amount to a consistent and, at times, wholesale disregard for its own policies and procedures.”

Admitted failure

Ms Rowland said it was not sufficient for firms to have documented policies and procedures, adding that implementation and compliance must be rigorously and systematically monitored and reviewed. “Despite supervisory measures taken by the financial regulator at the time, INBS, by its own admission, failed in this regard.

“Breaches of this nature are very serious and the Central Bank will continue to use the full extent of its administrative sanctions and enforcement powers to seek to hold those responsible to account.”

The Central Bank said it gathered hundreds of thousands of documents, issued more than 200 statutory requests for information, conducted 21 formal interviews in three jurisdictions and considered “voluminous documentation” and electronic data forensically copied from INBS’s systems.

“Successive tranches of new evidence were identified . . . during the course of the investigation, most recently in May 2015,” said the Central Bank. Although it has had powers since 2013 to issue fines up to €1 million, the bank has said the earlier €500,000 threshold would apply to regulatory and legal breaches before 2013.