The case, which dates back to the collapse of the lender in 2009, is the first where a person who was the subject of such an inquiry has had a determination against them, having not agreed a settlement.
The Central Bank must now apply to the High Court to confirm the inquiry decision. The time for a possible appeal has expired.
Director of enforcement at the Central Bank, Colm Kincaid, said the inquiry’s decision was “a significant milestone” in addressing the fallout from the banking crisis.
The Central Bank spent more than €24m on the INBS probe.
The cost includes its initial investigation into the collapse of the building society, the setting up and running of the independent inquiry, and the costs associated with defending a number of legal actions that in effect challenged the right of the regulator to pursue its cases against individual former bankers.
The inquiry found that INBS was run in a seriously deficient manner
The subjects of the inquiry carry their own costs.
The outcome was “absolutely worth it,” Colm Kincaid said.
The demonstration of the credible threat that regulators will pursue action is important to ensuring compliance across the finance industry, he said.
The independent inquiry was established in 2015 to examine the roles of INBS and four of its senior figures – Michael Fingleton, William Garfield ‘Gary’ McCollum, Tom McMenamin, John Stanley ‘Stan’ Purcell and Michael P Walsh – in the collapse of the former lender at a cost of €5.4bn that was borne by taxpayers.
INBS itself and three of the individual subjects of the inquiry agreed settlements with the inquiry – including accepting individual fines of up to €200,000 and disqualifications of up to 18 years.
In 2019, the inquiry permanently “stayed” the case into Michael Fingleton, who had been the managing director and major player at INBS, citing his poor health.
Michael Fingleton in 2015. He was the major decision maker at INBS – but in 2019, the Central Bank inquiry put a ‘stay’ on findings against him, due to his poor health. Photo: Tom Burke
The Central Bank has confirmed that the 2019 stay effectively ends any actions by the regulator in relation to Mr Fingleton, one of the best known and most controversial figures in the era of the banking boom and subsequent bust.
Commenting on the final decision of the inquiry, Central Bank governor Gabriel Makhlouf said it concludes an important enforcement action taken by the Central Bank in the public interest.
“It is critical to public trust and confidence in financial services that there is a credible threat of such enforcement for firms and individuals who break the rules put in place to protect consumers and the stability of the financial system,” he said.
“The sanctions imposed by the inquiry and through the settlements with INBS and the other individuals highlight the important position of senior role holders and board members in the financial industry.
“The inquiry decision shows the very serious impact that failures at board level can have, and provides valuable lessons to senior role holders in the financial services industry.
“It is essential that such key role-holders take responsibility for and drive effective risk management and strong governance,” he said.
The INBS inquiry was established in 2015 following an investigation in 2010 by the Central Bank into the INBS collapse. The three-member inquiry was made up of solicitor Marian Shanley, barrister Ciara McGoldrick and banker Geoffrey McEnery. It was independent of the Central Bank itself.
It looked at all aspects of INBS commercial lending between 2004 and 2008.
Over that period, the INBS commercial loan book expanded dramatically, from €3.59bn to €8.18bn – and grew to represent almost 80pc of the building society’s lending.
The inquiry found systemic regulatory breaches at every stage of the INBS commercial lending process, including not having a policy at all in relation to so called “profit share lending” – a massive part of INBS’s business, where the lender stood to make a share of profit in deals it lent into.
The inquiry found lending on a massive scale with little or no regard to approval processes, where they were notionally in place.
It found that the board and credit committee at INBS failed in their obligations to scrutinise lending decisions with hundreds of millions of euro across dozens on loans being signed off in single sittings.
These practices breached fundamental principles of good banking governance
In one case, €500m of lending was approved at an October 2006 board meeting. At a number of such sessions no loans were declined.
In relation to Mr Purcell, the INBS finance director, the inquiry decision found that between 2004 and 2008, as a board member, he participated in breaches of financial services law by INBS, relating to its commercial lending.
It found that INBS was run in a seriously deficient manner in relation to its commercial lending, credit risk and associated corporate governance and that the breaches were of a serious and systemic nature.
The inquiry considered that significant sanctions were warranted, in view of the seriousness of the improper banking practices involved.
“These practices breached fundamental principles of good banking governance, continued for over four years and had the potential to pose serious risks to financial markets and consumers.
“In imposing the sanction of disqualification, the inquiry noted that one of the principal aims of such a sanction is to protect the public – and that it also serves as a deterrent to others who might engage in similar conduct,” the final report said.
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