The Central Bank of Ireland (the "CBI") has announced that as result of a recent investigation it has identified "significant failures"1 on the part of two Irish mortgage lenders (permanent tsb ("PTSB") and Springboard Mortgages Limited ("Springboard")) in dealing with clients in connection with tracker mortgage products and the setting of interest rates.
The principal issues identified by the CBI are:
- PTSB failed to inform certain customers of the consequences of their decision to break early from a fixed rate or discounted tracker period; a number of customers were not told that they lost their contractual right to be offered a tracker rate in the future;
- PTSB failed to inform customers of their right to be offered a tracker rate at the end of the fixed rate period; and
- Springboard applied incorrect interest rates to certain mortgages.
The CBI has required PTSB to implement a comprehensive redress and reimbursement programme to compensate for losses sustained to the accounts affected (some 1,370 accounts are believed to be involved). The CBI has also required PTSB to apply a reduced interest rate to all impacted accounts as an interim measure in order to afford the affected customers an opportunity to consider their options.
CBI Investigative and Enforcement Activities
The CBI's investigative and enforcement powers have been expanded significantly in recent years. (These are addressed in greater detail below.)
In addition, the CBI's enforcement strategy has become noticeably more active. Investigations and consequent sanctions now pose major regulatory risks for regulated financial service providers and investment firms. Notwithstanding this, the CBI has only recently deployed the majority of the investigative and/or enforcement tools available to it. This was due, in part, to the fact that the subject of investigation by the CBI had, in the vast majority of cases, opted to enter into consensual settlement agreements with the CBI, rather than expose themselves to the rigours of an intense inquiry, potentially followed by hefty sanctions.
Therefore, the recent enforcement action taken against PTSB and Springboard is significant. It shows that the CBI is ready to use the full range of enforcement options available to it.
The primary legislation which affords the CBI its investigative and enforcement powers is the Central Bank Act 1942 (the "1942 Act "). The CBI's powers were overhauled by the Central Bank (Supervision and Enforcement) Act 2013 (the " 2013 Act"). This significantly enhanced the capacity of the CBI to supervise and investigate regulated entities and to ensure their compliance with relevant financial services legislation.
The powers now available to the CBI, due to the operation of inter alia the 2013 Act, and which are of particular note in light of the circumstances of PTSB and Springboard are as follows:
- The CBI is entitled to require the production of information, records, plan forecasts, accounts and other documents;
- The CBI has broad powers to enter, search and inspect premises and to secure premises for future inspection;
- The CBI is entitled to require the provision of explanations for decisions, courses of action, etc. by persons involved in the management and/or running of regulated entities;
- The CBI can refer instances of non-compliance with its requirements and/or directions to the High Court and it is a criminal offence to:
(a) Obstruct or impede the CBI in the exercise of its powers;
(b) Fail to comply with a requirement imposed under the 2013 Act, without reasonable excuse; or
(c) Provide misleading or false information, records or documents to the CBI; and
- Where it is satisfied that there have been widespread or regular relevant defaults by a regulated entity and that, in consequence of those defaults, customers have suffered, are suffering, or will suffer loss or damage, the CBI has broad powers to direct the regulated entity to make appropriate redress to its customers.
The 2013 Act also introduced a private right of action available to customers of any regulated institution to claim damages where a breach of financial services legislation has caused the customer loss. For these purposes potential claimants include not only consumers, small-to-medium size enterprises and other retail customers, but also large corporate entities and other sophisticated clients.
The PTSB and Springboard cases signal a sea-change in terms of the CBI's enforcement policy. The CBI now appears particularly proactive in terms of the use of the broad range of investigative and enforcement tools at its disposal. Regulatory risk is further increased by the ever-looming threat of the private right of action. Now, more than ever, regulated entities need to have robust compliance policies and access to top-quality advice when faced with the prospect of CBI enforcement action.