Culture is now seen by regulators as a key root cause of the major conduct failings in the financial services industry – Director General Derville Rowland

• Continued misconduct issues in financial firms since the crisis means that public trust in financial institutions remains very low
• Excluding the €316m paid out by firms in relation to the Tracker Mortgage Examination, firms have been required to return €164 million to consumers over the last four years following errors.
• Since 2006, the Central Bank has concluded 117 enforcement cases under its Administrative Sanctions Procedure and imposed over €61.6 million in fines     

In a speech today at GMIT, the Central Bank of Ireland’s Director General, Financial Conduct, Derville Rowland spoke of how regulators around the world are now focusing on the culture underlying the behaviour of financial services firms.

She said: “The apparent regularity with which misconduct issues have surfaced in the years since the crisis means that public trust in financial institutions remains very low.”
“These persistent conduct issues have prompted regulators worldwide to consider whether intrusive regulation and compliance measures are sufficient if we are to deliver on our goal of requiring regulated firms to act in the best interests of consumers.”

“Increasingly, the international regulatory focus is on transforming the culture in the financial services sector.”

“The Central Bank is working with the Dutch Central Bank, recognised leaders in behaviour and culture, who are participating in onsite inspections at lenders. We will engage with the firms’ boards and senior management to ensure there is a clear focus from the top on embedding and measuring firms’ own cultural change programmes.”

She continued: “The Central Bank plays an important gate-keeping role in ensuring that the senior management in our financial institutions comply with our fit and proper regime. Since 2012, for example, following fitness and/or probity concerns raised by supervisors in relation to proposed appointments to Pre-Approval Controlled Functions in regulated firms, we robustly challenged those applications, and 45 proposed appointments were subsequently withdrawn.”

Discussing the levels of money paid back to consumers due to errors in financial firms, she said: “By December last year, lenders been forced to pay €316 million in redress and compensation to 33,700 customers after they wrongly denied them valuable tracker mortgage products or charged the wrong rate.”

“Excluding the Tracker Mortgage Examination, firms have returned €164 million to consumers over the last four years following errors. Of this, firms identified and reported €75 million, while the Central Bank identified €89 million through our own supervisory activity.”

She spoke on recent measures taken in relation to binary options and contracts for difference (CFDs): “I am a member of the European Supervisory and Markets Authority (ESMA). One of the issues ESMA has been keeping a watchful eye on are CFDs and binary options. We have concluded that there exists a significant investor protection concern in relation to CFDs and binary options offered to retail investors. Last month, we announced a prohibition on the marketing, distribution or sale of binary options to retail investors and a restriction intended to cap the amount retail investors can lose on CFDs. Binary options almost always lead to the retail investor losing and, in my personal view, they are no more an investment than betting on a horse and have no place in the investment plans of retail investors.”

Director General Rowland also spoke about the importance of assertive risk based supervision of firms backed up by a credible threat of enforcement. “Importantly, the facts of our enforcement outcomes against individuals and firms are the subject of public statements on the Central Bank’s website. We publish the outcomes of enforcement cases to promote compliance across the whole industry and to act as a deterrent against future misconduct.”