18 Jan 2018 Speech
statement by Philip R. Lane
of the Central Bank of Ireland
the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach
I welcome the opportunity to appear
before the Committee today to update you on the progress of the Central Bank of
Ireland’s Tracker Mortgage Examination.
I am joined by Derville Rowland,
Director General, Financial Conduct; Ed Sibley, Deputy Governor, Prudential
Regulation; and Helena Mitchell, Head of Consumer Protection Supervision
A mortgage is the most significant
financial commitment for most people. They have a right to expect their lenders
to treat them fairly and honour contractual commitments. The
Central Bank’s role is to ensure that the best interests of consumers are
protected in their dealings with financial firms. That is why, after pursuing
tracker issues with a number of individual lenders through extensive
supervisory and enforcement work prior to 2015, the Central Bank launched the
industry-wide Tracker Mortgage Examination.
We did so because the more we learned
in our pursuit of those individual issues, and the more concerns were voiced by
customers, consumer advocates and public representatives such as yourselves,
the more certain we became that an investigation across every lender was
As the largest, most complex and
most significant consumer protection review undertaken by the Central Bank to
date, the Examination has exposed unacceptable failings by lenders on an
industry-wide basis and the lack of a consumer-centred culture in lenders.
These failings have had a detrimental and, in some cases, devastating impact on
many tracker mortgage customers, up to and including the loss of homes and
investment properties. It is clear that all lenders did not sufficiently
recognise or address the scale of those failings until intervention by the
Central Bank. We are using all appropriate powers to force banks to undo the
harm caused by their unacceptable failings.
Unusually for live supervisory work, we have
published regular updates on the Examination since its launch in 2015.
When we appeared before the Committee
last October, we reported that the Examination had at that point ensured that
approximately 13,000 customers would receive redress and compensation as a
result of lender failings, together with the 7,100 cases resolved through our
work prior to the Examination. We also made clear that more would follow as we
challenged lenders to include all customers harmed by mis-handling of tracker
mortgages. Last month, we published a progress report provided to the Minister
for Finance. Today, we can provide a further update to the Committee based on
The end-2017 figures show that lenders
have been forced to pay €316 million in redress and compensation. More will
follow, as the remainder of the 33,700 customers that were denied tracker
products or charged the wrong rates receive redress and compensation and as
claims submitted to the independent appeals processes are adjudicated.
When we last appeared before you, we
outlined the phased structure of the Examination and that lenders had submitted
their Phase 2 reports. We made clear we regarded certain reports to be deficient.
In particular, we said that certain lenders had left out groups of customers
whom, in our view, had been affected by their failures and were therefore
entitled to redress and compensation. We emphasised that we would robustly
challenge any such deficiency as we moved through our assurance work.
In that work, we scrutinised lenders’
reports, undertook on-site inspections, hauled in lenders’ senior management
and impressed on them the need to take a consumer-focused approach in complying
with the Examination.
The result of this intensive engagement
is that the issues around the inclusion of disputed groups of customers
identified to that point have now been resolved to the satisfaction of the
As a result of our challenge, there has
been a large increase in the numbers of customers between October last and
today who will be included in redress and compensation schemes – a
further 13,600 customers.
In short, the Examination is delivering
I wish to acknowledge the work of this
Committee and the Minister of Finance & Public Expenditure and Reform in shining
the public spotlight on those lenders involved in the Examination, adding to
the sustained pressure we have exerted on the lenders since the outset. Like
any regulator, the Central Bank is limited by law in the amount of information we
can publicly disclose about any regulated financial institution. Much of the
pressure we exert on lenders in order to protect consumers must necessarily be
done in private until outcomes are final and announced.
Of the initial group of 13,000
customers accepted by lenders up to end-September last, 74% have now received
their redress and compensation. The majority of the outstanding customers will
receive theirs between now and end-March, with the remainder receiving payment
by end-June. €181 million has been paid out to date to these customers, with
more to follow.
Of the 13,600 additional customers
accepted since October, 29% have received redress and compensation of €87.9m.
We expect the remainder to receive their redress and compensation between now
Lenders are counting the cost of this
scandal. In addition to the redress and compensation we require them to pay,
these institutions are bearing significant administrative costs to conduct the
Examination in line with our requirements. This can be seen in their
provisioning statements and their staffing levels. By way of example, the main
lenders have now made combined provisions of circa €900 million in respect of
the Examination, broken down as approximately €600m for redress and
compensation and €300m for costs, while one lender recently disclosed that it
had up to 500 people working on its redress scheme. These institutions also
must repair damaged reputations, not only as a result of the original
mis-handling of tracker mortgages but also due to the partial and delayed
engagement of some lenders with the requirements of this Examination.
While the Central Bank’s view is that the
vast majority of customers have now been identified, we will continue to
review, challenge and verify the work undertaken by the lenders and complete
our intrusive on-site inspection programme, which is probing lender compliance
with all aspects of the Examination framework and gathering evidence to support
our enforcement activity.
I acknowledge that this work has taken
time to complete and I am conscious of the devastating impact that lenders’
failures have had on customers, up to and including the loss of their homes and
I acknowledge also that no amount of
money will ever fully compensate a person or family for the trauma involved in
losing their home.
The Central Bank has heard many
distressing personal testimonies from customers who have contacted us. Our
awareness of the harm caused to so many families has underpinned our drive to
ensure all affected customers receive the appropriate financial redress and
compensation, and that we leave no stone unturned in seeking evidence to
support enforcement actions.
The scale, range and complexity of the
Examination, in addition to the material deficiencies in certain lenders’
responses, has required robust and sustained Central Bank intervention. This
has resulted in many more customers being included, and lenders significantly
improving both their redress and compensation proposals and their independent
appeals processes, to the benefit of those affected. While this has meant that
the Examination has taken longer than expected, the results are now becoming
evident in terms of the numbers of people identified as affected and the scale
of redress and compensation being paid.
In tandem with our supervisory work,
enforcement work is ongoing.
Four enforcement investigations are
currently under way, and we expect that all of the main lenders will face
Enforcement investigations are
detailed and forensic, and routinely involve the scrutiny of thousands of
documents and the conduct of interviews as part of the investigative process,
to establish the exact circumstances of matters under investigation.
In our enforcement investigations, the
Central Bank will consider all possible angles, including potential individual
While we are investigating, it is also
important to remember that the board members and senior personnel of lenders
have significant legal obligations to report potential regulatory breaches to
the Central Bank and to report certain potential criminal offences to An Garda
Siochána under the Criminal Justice Act 2011.
In that context,
we are writing to the board members and senior personnel requiring signed
confirmation from them that they are aware of their legal obligations.
The Central Bank’s Consumer Protection
Code requires that lenders act in the best interests of their customers. While
many lenders publicly state that they put customers first, evidence from the
Examination firmly suggests otherwise.
The Examination has exposed the manner
in which certain lenders have treated their customers and the degree of
regulatory force required to make them rectify such behaviour.
It is clear that significant
behavioural and cultural issues and challenges in some of the lenders still
exist and that customer interests have not been sufficiently protected or
The Minister for Finance has mandated
the Central Bank to report on the issue of behaviour and culture within lenders
later this year.
We are currently completing our scoping
work and the next step is to commence on-site assessments, which will
include engagement within each of the lenders at senior management, middle
management and staff levels to probe behaviour and cultural issues within
It is important to note that culture
is about more than behaviour. A partial list includes prioritising the best
interests of customers, offering responsible products, reviewing board effectiveness,
committing to diversity and inclusion and having robust internal audit and risk
management procedures. A defining cultural test is how a firm deals with
adverse situations: does it make sure that the best interests of customers are
protected, even if this damages short-term profitability?
The review will be underpinned by our
enhanced Consumer Protection Risk Assessment model, which facilitates us
in determining how financial firms identify and manage consumer risks,
including the risk that a firm’s culture does not promote and support the
protection of consumers. The behaviour we witnessed in lenders as part of the
Examination very much informed the development of this new model. We are
working with the Dutch Central Bank (De Nederlandsche Bank– ‘DNB’), recognised leaders in the
supervision of behavior and culture, who will participate with us in
on-site inspections at lenders.
The culture of a firm is the
responsibility of that firm. In particular, the members of its board should
constantly be asking questions of themselves and their firm. Such as: what
counts for promotions – high sales figures or high-quality interactions with
customers? Are the right products being sold to the right people? How do
staff incentives and rewards influence product sales and consumer outcomes? Are
the interests of customers taken into account when decisions are made in
the boardroom? Is the tone from the top signalling the right values to staff?
These are critical issues which
lenders must prioritise and get right if they are to truly reflect a
The Central Bank is effectively using
the full range of our powers to deliver for affected customers in relation to
the Tracker Examination. We keep under constant review the question of whether
additional powers would enable us to deliver more effectively our mission of
safeguarding stability and protecting consumers.
In that context, our
report into behaviour and culture at lenders will help identify any regulatory
enhancements that are required and whether any additional legislative changes are
Another example of how we keep our
powers under constant review is our response this month to the Law Reform
Commission issues paper on regulatory enforcement and corporate offences.
Finally, I wish to stress an
important message for affected customers receiving their redress and
The Examination Framework has
been designed to ensure affected customers have further options if they believe
the redress and compensation offered by their lender is insufficient.
Customers can accept the redress
and compensation offered and still make an appeal – they can “cash the cheque”
safe in the knowledge that what they have, they hold. Redress and compensation
offers cannot be reduced in the event of a customer making an appeal.
Lenders have been required to
establish independent appeals panels, specifically to deal with customers who
are not satisfied with any aspect of the redress and compensation offers that
they receive from lenders.
Together with redress and
compensation, affected customers will receive a separate payment which they can
use to pay for independent advice regarding the adequacy of their lender’s
In line with the State consumer
protection framework, all other recourse options are open to customers, such as
the Financial Services Ombudsman, who will deal independently with their
concerns, or the courts.
The tracker mortgage scandal is
unprecedented in its scale and has required an unprecedented regulatory
response. Our pursuit of lenders continues to ensure that they include
all affected customers and discharge their responsibilities under the
Framework. This will continue to involve intrusive supervisory scrutiny, which
means we will continue to review, challenge and verify the work undertaken by
the lenders and complete our own multi-faceted inspection programme. In
parallel, our enforcement investigations will continue.
– Outline of the Central Bank’s policy and supervisory interventions and
enforcement activity in relation to tracker mortgage-related issues in the pre-Examination
The Central Bank, as a regulator
and supervisor, has a key role in ensuring that there is a strong consumer
protection framework in place for consumers and in supervising firms’ conduct,
under that framework, on a risk- and evidence-basis.
During the period
pre-commencement of the Examination, the Central Bank intervened with a number
of individual lenders where it was concerned that tracker mortgage customers
were not being treated fairly. The Central Bank also kept the regulatory framework,
as it relates to tracker mortgage customers, under constant review, leading to
much enhanced statutory protections for customers, including those who are in
arrears and pre-arrears.
For example, in late 2008 – precisely at the
time that trackers were becoming loss-making for lenders – the Central Bank
issued a public warning to lenders in respect of their duty to act in the best
interests of their customers when recommending a switch from tracker to fixed
or variable rate mortgages.
During the period 2010 to 2013, we
strengthened the Consumer Protection Code (the “Code”) and the Code of
Conduct on Mortgage Arrears (the “CCMA”). Specifically, the CCMA
was updated and provides that a lender must only require a borrower who is in
arrears or pre-arrears to change from an existing tracker mortgage to another
rate as a last resort, and where all other options have been considered to be
Prior to 2015, we pursued tracker mortgage issues with
a number of individual lenders and ensured 7,100 cases were resolved in favour
of affected customers.
We also took enforcement action against
Springboard Mortgages Limited, resulting in a reprimand and monetary penalty of
€4.5 million, the highest penalty ever collected by the Central Bank further to an
A full history of these interventions can be
found in Part II of our March 2017 update on the Tracker Mortgage Examination,
which is available together with all previous updates on the Examination here: www.centralbank.ie/consumer-hub/tracker-mortgage-examination