Shortcomings in financial regulation - report
22 March 2010 11:01
by David Elkin
A report released today has outlined shortcomings in financial regulation leading up to the financial crisis crisis. The report, released today by the Comptroller and Auditor General, John Buckley, outlines the measures taken by the Financial Regulator before and during the crisis.
The report was completed before the announcement of a banking inquiry and was, in part, designed to update a report completed in 2007.
In particular, the report sets out adjustments made to the supervision of financial institutions covered by the State guarantee, the results of a review of the adequacy of its prudential inspection process commissioned by the Regulator and how one major incident - the practice of transferring loans of a director of one financial institution to another at its financial year end - was handled.
Recognising that adjustments to financial regulation will need to be made in an international context, it also outlines the findings of recent EU and international reports that examined the operation of financial regulation.
In the area of supervisory procedures and practices the report suggests that a greater emphasis on testing of transactions and balances might be considered as part of the Regulator’s inspection work. The basis for this is that risk based systems can only function optimally when informed by on-the-ground evidence based on actual transactions. It also suggests that a top down analysis of the sustainability of the business models and associated strategies of individual institutions could result in a more robust supervisory system.
The Minister for Finance has announced his intention to establish a fully integrated institution incorporating the Central Bank and the Regulator in place of the current structure, and legislation to give effect to these changes will be initiated in Dáil Éireann.