Banks in €1bn tracker mortgage scandal face fines next year

Some of the six Irish lenders under investigation by the Central Bank in relation to the State's €1 billion tracker mortgage scandal can expect to receive multi-million euro fines next year.

Speaking in a wide-ranging interview with The Irish Times, Central Bank governor Philip Lane said he expected that some of the regulator's enforcement investigations would be completed in 2019.

He declined, however, to comment on how many of the cases involving the six, including AIB and its EBS subsidiary, Bank of Ireland, Permanent TSB, Ulster Bank and KBC Bank Ireland, should be concluded next year – or on likely outcomes.

“The way it works is you have to accumulate a lot of evidence. You have to go through a lot of old emails, a lot of files, a lot of minutes. It involves interviews with key people,” Prof Lane said. “There’s a large team of people involved.”

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Law changes in 2013 doubled the maximum monetary penalty the regulator can impose on a financial firm for rule breaches, to €10 million, or 10 per cent of turnover, and for individuals from €500,0000 to €1 million.

The Central Bank is looking at the conduct of banks and senior individuals in them as far back as a decade ago when lenders first began to wrongfully deny borrowers their rights to a cheap mortgage linked to the European Central Bank’s rate.

Newer sanctions

It is also investigating how banks handled the matter after the Central Bank ordered them three years ago to examine their books for affected customers. Any violations that occurred since 2013 would face the newer sanctions.

The Central Bank issued its first fine in relation to the tracker scandal two years ago when it ordered Permanent TSB's former subprime unit Springboard to pay €4.5 million.

The Central Bank informed the Oireachtas finance committee last month that the number of cases identified as part of the industry-wide examination had risen to 38,400 at the end of August, from 37,100 in March.

Some €580 million had been paid out in refunds and compensation by that stage, with Ulster Bank known to be the laggard in making payments, largely due to issues with its IT systems.

Prof Lane signalled that the Central Bank’s next update on the tracker mortgage examination in January would show another increase in the number of impacted customers, though the extent of this was still under discussion.

“We double check and triple check, and through that we are discovering small groups of customers,” Prof Lane said. “I think these are customers who were not included earlier on and may end up being included, and I think it goes back to our determination to not forget anyone.”

A final report is expected “in the early part of next year” as the regulator completes its validation of banks’ figures, he said.

Economic threats

Commenting on potential economic threats to Ireland, Prof Lane said Brexit was negative under every scenario.

“The more immediate unknowns are about the physics of this. Will there be long queues at ports? Will there be forgotten areas, or underappreciated areas, like medicines and foodstuffs etc, where we’re not too sure about how everyone is prepared? So, the disruption under a disorderly Brexit may be more in those areas.”

The Central Bank has received more than 100 applications from overseas firms looking to base operations in Ireland to ensure access to the EU single market post-Brexit.

IDA Ireland has said that asset managers account for about half of the applications.

“There was a surge [in applications] after the summer, but it’s probably stabilising now,” said Prof Lane. “It’s across many sectors, payments as well. It’s a significant step-up, but proportionate. It’s not the case that it’s transforming the banks.”