On Tuesday evening, Sinn Féin spokesperson on Finance Pearse Doherty TD was invited to speak to the Irish Banking Culture Board during their pre-board session.
You can find his remarks below:
Introduction
A chara,
I want to begin by thanking the Irish Banking Culture Board for inviting me to speak this evening with a focus on culture within the Irish banking industry.
Public Trust in Banking
This comes soon after the Board launched findings on the 17th of May of its Public Trust in Banking Survey.
The findings of the survey provide an opportunity to reflect on the culture and behaviour of the industry, and the success of the Irish Banking Culture Board itself in meeting its own objectives.
The Board, established in April 2019, was an industry initiative, funded by the five retail banks in the Irish market.Its stated aim is “rebuilding trust in the sector through demonstrating a change in behaviour and overall culture”.[1]
If we judge the performance of the Board against the findings of its Public Trust in Banking Survey, then there is cause for considerable concern.
The public are not convinced that sufficient change has taken place to improve its perception of the industry.
43 percent of respondents said their perception of banks had worsened since the 2008 financial crash, with only 23 percent saying their perception had improved.
Overall, 46 percent recorded a low level of trust in the industry with only 19 percent recording a high level of trust.
The Board is correct to recognise the significant challenge posed by the findings.
However, I would take issue with the Board’s suggestion in the Executive Summary of its Report that the negative perception of the industry “seems to be driven less by specific examples and more by a general ‘feeling’ that banks prioritise themselves”.[2]
The negative perception of the industry is driven by the tangible experiences of, and demonstrable harm that have been visited on, customers and borrowers, rather than some ill-defined feeling.
From GFC to TME
The deep mistrust felt towards the sector finds its origin in the financial crash of 2008.
However, the financial crash and its consequences are by no means the only reason or explanation for public mistrust of the Irish banking sector.
As the Irish Banking Culture Board has itself acknowledged, the tracker mortgage scandal was the key catalyst for its establishment.
In its final report on the Tracker Mortgage Examination, the Central Bank reported that more than 33,000 borrowers had been identified as having been affected by the scandal, with €683 million paid in redress and compensation by the end of May 2019.
As the Central Bank noted, since the Examination began in 2015, “some lenders initially attempted to minimise the number of affected customers to whom they would have to pay redress and compensation”.[3]
As a result of the banks’ actions, 99 family homes were lost by the end of May 2019.
This is not a ‘general feeling’ that banks prioritise themselves, but a demonstrable fact that they have, inflicting considerable harm on their customers as a result.
Since the establishment of the Board, three of the five retail banks that fund it have been reprimanded and fined a combined €77.1 million by the Central Bank.
With respect to Permanent TSB, the bank was fined €21 million in May 2019 for what the Central Bank described as “the unacceptable harm PTSB caused to their tracker mortgage customers, from extended periods of significant overcharging to the loss of 12 family homes…” [4]
With respect to KBC Ireland, the bank was reprimanded and fined €18.3 million for serious failings to its customers even throughout the Tracker Mortgage Examination itself.
In its Enforcement Action Notice in September 2020, the Central Bank concluded that “the impact of KBC’s failings on its customers… was devastating and included significant overcharging and the loss of 66 properties”. [5]
This included 11 family homes.And in March of this year, Ulster Bank was reprimanded and fined €37.8 million for serious failings in the treatment of its customers which occurred as recently as April 2020.
In the words of the Central Bank, “Ulster Bank caused unacceptable and avoidable harm to its impacted tacker customers; from extended periods of significant overcharging to the loss of 43 properties, 29 of which were family homes”.[6]
Disturbingly, harm was meted out by both KBC and Ulster Bank even during the Tracker Mortgage Examination, with their failure to comply with the Central Bank’s Stop the Harm Principles.
Instead, it seems a Continue the Harm Principle guided their operations.
Therefore, contrary to any narrative that public mistrust is driven by an ill-defined or ‘general feeling’, it is instead driven by real examples, real lives, and real harm caused.
There are questions then, not just for the banks referenced, but also for the Irish Banking Culture Board.
The Board was established in response to this crisis in order to drive cultural change.Yet it failed to criticise any of the banks concerned when each Enforcement Action Notice was issued with respect to the considerable failings of the banks involved.
Instead, a generic statement was issued in March, which included banalities such as “changing culture takes time”.[7]
There are, therefore, concerns to be raised and questions to be asked regarding the true purpose and efficacy of the Board, and its ability to pursue its stated aims independently of the interests of the banks that fund it.
How can the Board rebuild public trust if it is unable to criticise banks when they are fined for activities that caused the loss of 52 family homes?
That is a question for the Board to answer.
What is clear is that public mistrust is well-founded and demands an outcome-driven response.
Behavioural Change and Accountability
As I have said, the purpose of the Board on its establishment was to rebuild trust by demonstrating a change in behaviour and overall culture.
I believe priority should always be given to the former over the latter.
Culture is difficult to define or measure.
It is a concept that applies to communities, organisations and groups; rather than being directly attributable to a specific individual.
Often, cultural change is understood as a voluntary initiative, taking place gradually and from within.
Such voluntarism within the banking industry has demonstrably failed.
Behaviour, on the other hand, is easier to define and measure.
Behaviours have outcomes.
The most effective way to manage bad behaviour and reduce bad outcomes, is to deter them through mechanisms of sanction and accountability.
In this regard, the Fitness and Probity Regime and Administrative Sanctions Procedure have been powerful tools in maintaining standards and penalising firms when those standards are not maintained.
However, the current Framework is simply insufficient to drive behavioural change and improve standards.
This can only be achieved by ensuring that individuals within the industry are aware of their responsibilities and are held accountable for their actions.
A lack of individual accountability paves the way for misconduct and the mistreatment of customers.
An individual accountability regime was introduced in Britain in 2016 in the form of the Senior Managers and Certification Regime, and in Australia in 2017 with the introduction of the Banking Executive Accountability Regime.
In July 2018, the Central Bank called for a range of similar reforms that would enhance their toolkit to promote what they described as a “culture of ethical compliance by firms and individuals”. [8]
Among the reforms sought was the introduction of a Senior Executive Accountability Regime.
This regime would place obligations on firms and senior individuals to set out clearly where responsibility and decision-making rests; thereby ensuring clear responsibility and accountability.
More than three years since these reforms were first requested, the Government are yet to publish the Heads of Bill of the legislation that would provide for these reforms.
This is unacceptable.
Just as public trust must be earned, so too standards will only improve if bad behaviour is sanctioned with those responsible held to account by the regulator.
In that sense, the Senior Executive Accountability Regime is crucial to drive change in the industry and protect the interests of consumers and customers.
The legislation that provides for its introduction must be published by Government without delay.
Protecting Borrowers during and beyond the Pandemic
As the Public Trust in Banking Survey recorded, only 38 percent of respondents agreed that the banking sector responded well in helping society during the Coronavirus pandemic. [9]
The pandemic, and its impact on individuals and SMEs, has not ended; and time remains in which the banking sector can support borrowers who have been affected.
The initial response to introduce payment breaks for borrowers impacted by the pandemic was welcome, providing much needed relief for households and SMEs at a time when unemployment stood at 21 percent and rising.
However, like all things, the devil was in the detail; and I believe the sector should have waived the accrual of additional interest during the break period – an option which the EBA guidelines allowed, as confirmed by the Central Bank and exercised by lenders in other Member States.
Given the already high mortgage interests that characterise the Irish market compared to its European counterparts, this decision will have led to an increase in the outstanding balance of borrowers who utilised payment breaks out of necessity.
However, as we emerge from the pandemic, the sector has an opportunity to rebuild trust and demonstrate change by the way it treats its customers.
With unemployment unlikely to recover to pre-pandemic levels until after 2022, a cohort of borrowers will find themselves in some form of mortgage arrears.They must be supported.
The Code of Conduct on Mortgage Arrears, and the Mortgage Arrears Resolution Process, should have full legal effect; with lenders working through the full suite of alternative repayment arrangements with affected borrowers.
That no enforcement actions have taken by the Central Bank from 2016 to 2020 for breaches of the CCMA raises justifiable suspicions regarding its enforceability.[11]
The Code should not be an option but a statutory requirement.
Coupled with this, securitisation and the selling of mortgage loans to non-bank entities and vulture funds as the option of first resort must end.
As the Deputy Governor of the Central Bank noted in November 2019, “the Central Bank is still having to push banks and non-banks too hard to take a customer centric approach to resolving arrears”. [12]
If the sector is to regain trust, it must take a customer-centred approach to all issues affecting its customers.
That is what a customer expects when they pay for a bank’s services and products.
It is what they are entitled to under the Consumer Protection Code and other codes.
In its Public Trust in Banking Survey, the Irish Banking Culture Board describes four key trust dimensions: ability, integrity, dependability and purpose.In my own constituency of Donegal, thousands of homes are affected by defective blocks containing Mica.
Many of these homes, now crumbling as a result of light-touch regulation and industry failure, are mortgaged.
Under the current redress scheme, and what we hope will be a 100 percent redress scheme for affected homeowners, these assets will be restored.
Given this is the case, the sector should recognise that it has a role to play in sharing the costs of remediation.
This too, is a test of the sector’s commitment to these trust dimensions, its purpose and role in Irish society.
Conclusion
The Irish banking sector and society face great challenges in the months and years ahead.
These challenges are set in the context of rapid change, with ever-accelerating digitalisation and the recent announcements that Ulster Bank and KBC are to withdraw from the market.Faced with these challenges, Sinn Féin have called for a Future of Banking Forum; involving key stakeholders, to consider the current state and long-term future of the sector.
Unfortunately, time has restricted my ability to speak on these and other developments in the sector.
However, I hope we can discuss some these issues in the discussion that will follow.
Go raibh maith agat.
FOOTNOTES
[1] Irish Banking Culture Board, Vision and Purpose, Vision and Purpose – Irish Banking Culture Board
[2] Irish Banking Culture Board, ‘2021 Public Trust in Banking Survey’, 18 May 2021, IBCB 2021 éist Public Trust in Banking Survey – Irish Banking Culture Board
[3] Central Bank of Ireland, ‘The Tracker Mortgage Examination: Final Report’, July 2019, Update on Tracker Mortgage Examination – July 2019 (centralbank.ie)
[4] Central Bank of Ireland, ‘Public Statement relating to enforcement action against Permanent TSB p.l.c.’, 30 May 2019, Public statement relating to enforcement action against Permanent TSB p.l.c. (centralbank.ie)
[5] Central Bank of Ireland, ‘Public Statement relating to Settlement Agreement between the Central Bank of Ireland and KBC Bank Ireland plc’, 24 September 2020, Public statement relating to Settlement Agreement between the Central Bank of Ireland and KBC Bank Ireland plc
[6] Central Bank of Ireland, ‘Public statement relating to Settlement Agreement between the Central Bank of Ireland and Ulster Bank Ireland DAC’, 25 March 2021, Public statement relating to Settlement Agreement between the Central Bank of Ireland and Ulster Bank DAC
[7] Irish Banking Culture Board, ‘IBCB Position on Central Bank of Ireland Tracker Mortgage Investigations’, 26 March 2021, IBCB Position on Central Bank of Ireland Tracker Mortgage Investigations – Irish Banking Culture Board
[8] Central Bank of Ireland, ‘Behaviour and Culture of the Irish Retail Banks’, July 2018, Behaviour and Culture Report | Central Bank of Ireland | Central Bank of Ireland
[9] Irish Banking Culture Board, ‘2021 Public Trust in Banking Survey’, page 19, 18 May 2021, IBCB 2021 éist Public Trust in Banking Survey – Irish Banking Culture Board
[10] Central Bank of Ireland, ‘Response to Pearse Doherty TD on payment breaks’, 22 June 2020, Response to Pearse Doherty on Payment Breaks published 22 June 2020 (centralbank.ie)
[11] Houses of the Oireachtas, ‘Code of Conduct on Mortgage Arrears’, Dáil Éireann Debate, 24 November 2020, Code of Conduct on Mortgage Arrears – Tuesday, 24 Nov 2020 – Parliamentary Questions (33rd Dáil) – Houses of the Oireachtas
[12] Ed Sibley, Deputy Governor of the Central Bank of Ireland, ‘Retail Banking – delivering for customers?’, BPFI National Retail Banking Conference, 12 November 2019, Retail Banking – delivering for consumers? – Deputy Governor Ed Sibley (centralbank.ie)
