Overcharging customers for 10 years is deeply worrying, writes Siobhán Creaton, Finance Correspondent
Most of AIB's 1.1 million Irish customers might look more carefully at their bank statements in future and would be wise to do so.
News that Ireland's biggest bank systematically overcharged certain customers to the tune of €20 million over the past decade paints a very bleak picture for Irish consumers and once again raises serious questions about AIB's corporate culture.
It is hard to believe that with all the rules and regulations governing financial institutions that AIB could have levied a rate of commission that was twice the authorised level since 1994 without triggering an alarm.
Consumers can draw little comfort from the fact that this shoddy practice came to public attention because a "whistle-blower", who had tipped-off the Irish Financial Services Regulatory Authority (IFSRA) almost three weeks ago, also contacted RTÉ.
AIB's own internal audit and compliance functions failed to notice the discrepancy. It had escaped the notice of IFSRA, which randomly checks bank charges. The Director of Consumer Affairs, who approves these fees, has no role in policing their application. IFSRA said it has now written to all of the State's financial institutions to order them to check that they are applying the correct fees and charges.
The customers who were out of pocket presumably simply didn't know that the bank should have been charging them a rate of commission of just 0.5 of a per cent and not the 1 per cent they added to the affected foreign exchange transactions. Now they are being asked to check through their records to see if they are entitled to a refund.
On Friday, AIB suggested that its customers who were the victim of an "error" were out of pocket by around €14 million. Four days later though, IFSRA suggested the figure was closer to €20 million and reminded the bank that as well as reimbursing those customers, it must also pay them another €5 million in interest.
AIB has also admitted that in the weeks before the regulator began its investigation, some of its officials had been adjusting the currency converters used by its foreign exchange staff to reflect the correct rate of commission. AIB said its senior management, including chief executive Michael Buckley, were unaware of this initiative.
The bank appeared to be pointing the finger of blame at junior staff and drew an angry response from the Irish Bank Officials Association. The AIB chairman, Dermot Gleeson, a former attorney general, yesterday moved to assuage those fears, saying that nothing in the information available to date suggested that the responsibility for this debacle rests within junior ranks.
Mr Gleeson and other AIB directors are well versed in crisis management. Most of the current board dealt with the fallout from the $691 million fraud perpetrated by rogue trader John Rusnak at its US subsidiary in Baltimore, Maryland, two years ago.
The bank hired the eminent US banker Eugene Ludwig to investigate the fraud. He blamed "incompetence and lack of supervision at a gross level" for what had unfolded. AIB's board of directors ordered the dismissal of Rusnak and his colleagues and their immediate superior for their part in the fraud but no senior firings ensued.
Given this outcome, perhaps it is not surprising that junior staff at AIB were concerned about their position this time around.
Mr Ludwig's report was damning and revealed countless incidents where warning signs were either ignored or were not picked up by the bank's internal systems. In the immediate aftermath, AIB reorganised its risk management and compliance functions, to reduce the likelihood of other significant lapses.
This was not the first time that AIB's shortcomings had been exposed. In 1999 AIB made the biggest tax settlement in the history of the State when it paid £90 million (€114 million) in unpaid tax and penalties arising out of the inquiry into Deposit Interest Retention Tax (DIRT) evasion.
AIB was found to have been the biggest provider of bogus non-resident accounts that were used by individuals to evade DIRT and to shield other income from the Revenue Commissioners.
Now AIB is facing yet another independent inquiry.
Perhaps a closer examination of the corporate culture within AIB may be fitting. As well as increasing profits for its shareholders, the bank must also respect its customers.